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Funding the Government Without Taxes: Money for Contracts and the Torts for Free

Funding the Government Without Taxes: Money for Contracts and the Torts for Free

By Wald Branehart

The IRS regularly targets members of the Tea Party and other groups that favor limited government for harassment. This has an unacceptable, if not unconstitutional, chilling effect on freedom. Speak your mind or otherwise stand up for limiting, rather than expanding, the power of governments and BOOM! You figuratively have a bull’s-eye painted on you. Even if you can prove you paid your taxes (and did everything else according to the law), the IRS and other agencies can still make your life a living hell for a long time. And they’ll use their status as governmental entities to avoid accountability for wrongfully harassing you. It’s no wonder conservative talk shows are full of ads for folks who can help if you’re audited.

There are many people in favor of some type of simplification of the tax code. There are proposals for flat taxes and fair taxes and even national sales taxes, among others. But while simplification is a good idea, it doesn’t really address the real problem: the leverage taxes give governments over private citizens who want freedom and limited government. Because while fair taxes and flat taxes may be simpler taxes, at root they are still taxes – and are by their nature the opposite of freedom and limited government. Taxes are based on the premise that you do not own or have a right to your property, or at least some of it; governments ‘own’, in essence, whatever share their laws allow them to take. To increase their power governments always want to increase this share. And, of course, if you hide your property to reduce your taxes, you are legally a criminal and the government gets the go-ahead to destroy your life.

We need governments and must fund them. Without functioning governments there would be anarchy with everyone essentially his own judge, jury and prosecuting attorney, free to do whatever he wants to anyone else. All the benefits of interpersonal relationships including much of civilization would become impossible. It would be, as Thomas Hobbes described in Leviathan, a “state of nature” where “life is brutish and short.”

The trick is to figure out how to fund governments without giving them leverage over those they govern. This would require some kind of situation that would force people to fund the government, while not subjecting them to legal harassment if they didn’t.

There is such a system. As a play on the lyrics of the 1980’s Dire Straits song “Money for Nothing”, I call it Money for Contracts and the Torts for Free. Here’s how it works.

Whenever businesses enter into commercial contracts, they would remit an amount equal to a legally determined percentage of the value of each contract to federal, state and local governments to fund their operations. For example, a developer signs a contract with a contractor to build a building that will cost $6,000,000. The jurisdiction has a percentage rate of 7%. The parties would be liable for paying the government of that jurisdiction $420,000.

If a contracting party does not pay its share of the amount due to the government, the government will have no power to prosecute or otherwise use force in any way to collect the money. This would end the oppressiveness of governments regarding financing. However, the nonpaying party will not be able to sue the other party to enforce the contract and will have no recourse if the other party breaches it. For example, assume there are two parties to the aforementioned contract for a building. The parties agree that each party will pay half of the amount due the government, so each party has to pay $210,000. The party responsible for constructing the building pays his share but the other party, responsible for paying him the $6,000,000, does not. If the party constructing the building does so and the other party refuses to pay him, he can sue to get paid. But if the party constructing the building does not construct the building, the other party, not having paid his $210,000 to the government, cannot sue the other party for damages until he does pay it. The consequences of a breached contract can potentially be severe enough to bankrupt a business, so businessmen will pay to enforce them and governments will get a reliable stream of revenue.

Meanwhile, people will still be able to call the police, press criminal charges and sue civilly if they are physically attacked, defrauded, defamed, robbed, kidnapped, victimized by negligent behavior, their homes or businesses are broken into, their property is stolen, etc. This kind of protection everyone would get for free.

To better understand Money for Contracts and the Torts for Free, it is worthwhile to examine the nature of the two bodies of law that are relevant to it: contracts and torts.

Tort law is the oldest branch of the English common law. Developed in Great Britain between the Norman Invasion of 1066 and today, the English common law is the foundation for the legal systems governing countries with an English heritage including the United Kingdom, Ireland, Canada, the United States, Australia and New Zealand. Tort law prevents torts, which is the French word not for pastries, but for wrongs (and thus apropos because the Normans were French and brought tort law rules with them in 1066).

Almost all of the ways someone can initiate force against someone else are considered wrongs, or torts: battery, which means battering, or physically attacking, poisoning, etc. someone else; assault, meaning attempting to batter someone else; trespassing; false imprisonment; theft and destruction of someone else’s property; negligent behavior causing injury to someone else or their property; misrepresentation; and defamation. More severe torts are called crimes, which are based on torts. For example, the crime of homicide essentially means committing a battery resulting in the victim’s death. The crime of robbery is essentially theft under violent circumstances. Burglary is a certain type of trespass. Rape is a battery involving sexual penetration. Kidnapping is false imprisonment of someone plus moving him away from where he was captured. Arson is destruction of another’s property by using fire. Fraud is usually a theft through misrepresentation. Etc.

It is important to remember about torts that, notwithstanding defenses[1], they are actions that for the most part are automatically wrong for everyone all the time. By banning the initiation of force, tort law is the most basic body of law that protects individual rights to life, liberty, property and the pursuit of happiness.

But while tort law can prevent people from stealing things and bashing each others’ skulls in, it can’t compel someone to pave a street, deliver a shipment of books or food, draft a legal opinion, construct a building, or pay someone for doing any of these things. This is why contract law is necessary. A contract is a binding and legally enforceable promise voluntarily entered into by someone to do something for someone else. Most commonly, it involves one party obligated to provide a good or service to the other, and the other obligated to pay him for it. It’s also possible for both parties to be obligated to provide goods or services to each other. In any case, if someone enters into a contract and then doesn’t do what he promised, he can be sued for breaching the contract and be liable for compensating the other party for any injury caused by the breach.

Contracts allow people to reasonably rely on others, making division of labor and all of its benefits possible, including much of civilized living. Without contract law this wouldn’t be possible for the most part because there would be no legal way to hold others accountable for the promises they make. People would essentially be trapped in a very primitive standard of living, unable to depend on anyone for their needs but themselves.

In contrast with torts, contractual obligations are not automatic and don’t apply to everyone. Rather they are contract specific and apply only to the people who enter into them. This is why, while I consider tort law “automatic” law, I consider contract law “do it yourself” law. Tort law provides the basic social compact to respect individual rights and refrain from initiating force against others that everyone must follow. Above and beyond that, to do specific things that some people want done but others don’t, people can tailor the law to their specific needs and hold only certain people bound by it with contracts.

The logic of Money for Contracts and the Torts for Free should now be clear. As humans we need to live free from force. Therefore protection from torts should be free and automatic for everyone, with anyone able to dial 911 whenever they need to. However, if someone wants to use the government for something extra, like to compel someone to live up to his obligations under a custom-made contract to build a building, perform surgery, manufacture or distribute a particular product, etc., he should pay extra for it.

If people had to pay to protect themselves from torts the result would be a disastrous protection racket. Instead of being harassed by the IRS, everyone would be at risk of being attacked by street gangsters. Governments could perpetually shake down everyone as much as they like and if anyone refused to pay, suddenly thugs and goons could beat him senseless, steal his property, burn his house down – until he forked over whatever amount the government requested. But with an obligation to pay to enforce contracts, the consequences would be far less severe and there would be no protection racket. Instead of being beaten to a pulp, the deadbeat who didn’t pay his enforceability fee would merely be at risk of the other party’s breach. In addition the harm would be localized to the nonpaying party and those associated with him, and not a threat to society as a whole.

Money for Contracts and the Torts for Free would even satisfy the public policy objective of progressive taxation. It is rich and middle income people who run businesses, at least high value ones. It is they who, in doing so, make contracts and thus they, not the poor, who would be paying the fees to enforce them. The poor, in contrast, wouldn’t be paying anything and would have no burden to finance the government, so government financing would not impose any financial hardship on them.

As with a national sales tax, Money for Contracts and the Torts for Free would only be effective at ending the abuse of the existing tax system if there were no tax system. Otherwise, it could become an additional financial burden in addition to existing income taxes. Therefore before Money for Contracts and the Torts for Free could be implemented, there needs to be a total repeal of the current tax system. Repealing the 16th Amendment to the Constitution would be a good idea.

There are a number of operational details that can be worked out in the future. For example, the default rule, if the contract is silent and the parties didn’t decide otherwise, could be that the parties would split the obligation to pay the enforceability fee equally among the contracting parties as in the preceding example. Also one party might be able to waive its obligation to pay its share with the consent of the other party, who would then pay the whole amount due. The effect of amendments to contracts which would change the value of a contract and thus the amount due to governments would also have to be addressed. Also to be worked out are the rights of a nonpaying party who is sued by a paying party. He would have to have a constitutional right under due process of law to defend himself, but could he bring a counterclaim if appropriate against the party suing him? I would say no. Anyone has a right to defend his self if sued, but to countersue, pay the fee.

There are some unavoidable hazards. For example, the term “value of the contract” would of course be legally defined by statute, just as tax rates are today. This statute could become complicated like the current tax code and for the same reasons, as special interests would lobby for the changes to it that they want. Also, governments would still want the percentage rate to be as high as possible. The only cure for this is pressure from the electorate to prevent it from increasing, much the way people lobby for lower tax rates today. Regardless of the system used to fund the government, it is still the government you will be funding – and to do that, there never will be a substitute for eternal vigilance.

Regardless of these issues, however, I believe such a system would be vastly more preferable than the one we have today. Not only would it be unoppressive for reasons previously noted. It also probably would be far less costly to administer. Even if special interests succeed in making the law complex, it probably would never become as crazy as today’s tax code. But even if it did, the absence of the threat of prosecution and audits might collectively save businesses billions if not trillions of dollars, leading to far more wealth production and an explosively vigorous economy.

Obviously I don’t expect all of this to happen tomorrow. But what I hope to do is, between now and Election Day 2016, get as many freedom-loving people as possible thinking along these lines. Those who value limited government can escape the leverage of the IRS with a theory like Money for Contracts and the Torts for Free.

© by Wald Branehart 2015

[1] There are defenses to a tort claim, such as self defense and defense of others against someone who initiates an attack, or consent (i.e., you can’t sue someone for battery if they punch you in a boxing match or tackle you in a football game you voluntarily entered into), duress, emergencies, etc.

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