I can’t entirely agree with David Howden who says, “The single best test of the “goodness” of a tax could be whether it can be reasonably expected to affect all parties similarly. Presumably, these effects should not be pernicious.”
The trouble is that those two components are not always, or even generally, compatible. If it taxes all of some large group the same by some measure – e.g., same percentage of their income, same number of dollars – then some in that group will be affected well, perhaps – but others badly, and some much worse than others.
Taxes treat some large group of people the same, even when all loopholes etc are taken into account. Nonperniciousness should presumablly be approval – consumer approval. But within any sizable group people are not the same. For some members of that group, the results will be pernicious and for others, not. The advantage of a market system is that you buy if and only if you think that you, on that occasion, are making best use of your funds as you see it at that time. Taxes spectacularly lack that important feature.
A tax might well be argued to be a contradiction in terms for a market economy. But let’s table discussion on that claim and ask what it would take to make a tax comply with rigorous libertarian criteria. Here’s my suggestion about the proper test of a tax: would EACH person required to pay it be willing to pay that much for that service IF he had his choice between the government’s in-fact-involuntary supplying of it and any alternative source of supply – assuming they were allowed to offer it? Only if every last one of them would does a tax beat the market. For with markets, either the consumer likes it enough to buy - or he doesn’t, and if so does not buy.
Government probably always flunks this test. First, it typically disallows competition, so the consumer simply doesn’t know whether he’s getting the best deal. Do we know whether medical services, roads, and much more wouldn’t be cheaper than they are if people were permitted to offer them privately (and without a horrendous amount of regulation)?
Second, the “service” is always one that at least some people would rather not have at all, or at least not at anywhere near the price imposed by the tax. This makes it impossible to justify compulsory purchase, surely.
The argument for taxes by those who think them justified would be that each person who loses from a tax for service A would be compensated by what he gets from service B. But if that is a testable claim, presumably it would also be true that if the consumer were offered a bundle consisting of A and B at a cost of T, he would then be ready to go for it. With its bewildering bundle of contemporary supposed services, this would become very difficult to test. Enthusiasts for democracy will claim that an election shows that a given government has come up with the wrong bundle. Given its well-known inefficiencies, however, that claim passes into the realm of metaphysics.
If it could pass this test, government would be acceptable, anyway. The chances of its doing so are very poor, on reflection – surely very near to zero.