Productive Theft: Taxation, Violation, and Compensation in Nozick’s Minimal State

It appears to be a common tactic to object to Nozick on the grounds that absent from his argument is any support for the powerful assumption that we possess natural, institution-independent rights. While that objection is my primary conviction, many others have argued in that vein already. Instead, I will sketch a more nuanced argument attempting to show that there is a narrow home for non-protection-purposed taxation within Nozick’s own framework. For this purpose, I will grant that such taxation is theft. In sections one and two, I will show that the amenities and services rendered to tax-theft victims by the state satisfy two just concepts of which Nozick approves: compensation and productive exchange. In section three, I will address two potential objections to my claims. Finally, I will conclude that while this carveout for taxative theft does not justify the state’s actions morally or otherwise, it more accurately locates the practice within Nozick’s natural rights framework as a productive benefit to its victims.

I. Capitalizing on Nozick’s Concept of Compensation

My argument is inspired by Nozick’s concept of compensation. Nozick (1974) asserts that individuals are owed compensation when their rights are violated.[1] A person has been so compensated if he is made “no worse off than he otherwise would have been” had the transgression not occurred (Nozick, 1974, p. 57). Nozick allows that compensation need not be made in kind. For example, compensation for violating individuals’ rights to protect themselves can be paid in protective services or cash equivalent to the losses that may result. There are more obvious examples showing the need for compensation in something other than kind, such as when the violation entails mental or physiological damage or the destruction of irreplaceable property.

Suppose the state violates an individual’s personal property rights through a coercive tax for purposes other than protection. It follows from the outline above that the state must compensate the individual for its transgression. Is the broad array of non-protection-related tax-funded services that the government provides sufficient compensation? That question might lead to a swift and reasonable objection: state services do not meet the criteria of compensation described above if the individual already had access to those services before the tax was exacted; since the state has not provided anything new, the individual remains worse off than they would have been before the tax. This response seems perfectly intelligible at a glance, but I will argue that it does not hold up, given deeper consideration. To begin with, the view is muddled by the fact that we have isolated a single individual in the context of readily accessible tax-funded services. To address the objection, let us start where Nozick would have us end—the minimal state.

Consider a perfect specimen of Nozick’s minimal state, with taxation for protective services only. Suppose the administrators of that state decide to establish state-funded amenities similar to what we have in the U.S. today. They diverge from the Nozickian standard by electing to fund those amenities through additional coercive taxation, also similar to what we have in the U.S. today. On the day established for collecting protective services taxes, the state enforces its collection of the new tax, thereby committing massive, widescale theft. The state goes immediately to work compensating its taxpayers with an array of infrastructure and services: interstates and local roads, grade schools and universities, unemployment insurance, bank deposit insurance, disaster insurance, screenings of foods and medicines, preservation of national parks, a space program, civil engineer corps, and so forth ad nauseam. The average amount of tax extracted per person is around $6,500. The array of amenities provided as compensation is so vast that every state member benefits directly or indirectly from a long list of them.

To meet Nozick’s notion of compensation, these services must leave individuals no worse off than before the tax was exacted. This is a narrow imperative: the individual need not be better off than they were, simply no worse. A straightforward way to evaluate this is to consider what it would cost for any given individual to pay for each of the compensatory amenities and services of which they avail themselves. The purpose of this evaluation is not to determine whether the state’s tax collection was justified—I make no appeal to justification in this argument—but simply whether the compensation is adequate. Suppose Javier, an average citizen of this state, benefits from the use of a few newly constructed roads, a public school, and the state-sponsored testing of the foods and medicines he consumes. The cost to furnish himself with those amenities and services, had the state not provided them, would dramatically exceed the roughly $6,500 taken from him. What is more, he now has at his disposal these several resources where they had not existed before.

Some might argue that it is not fair to compare the full cost of each amenity against his losses since those amenities are shared among all other citizens; surely, we should only make the comparison to a commensurate fractional share of the cost of the road. To them, I note that Javier does not use only a fraction of the road; he uses the entire road. The fact that others drive on it before and after him does not touch the fact that, had Javier elected to construct such a road for himself, it would have cost him far in excess of the $6,500 taken from him. As such, having been compensated with full use of the road—lane to lane, both ways—he has been compensated with something the value of which, for Javier, far exceeds what he lost by the tax.

II. Productive Theft

Arguably—perhaps mathematically—Javier is not only as well off as before the state’s theft but better off after being compensated. In addition to meeting Nozick’s concept of compensation, the taxation theft scheme I described in section one also satisfies his notion of productive exchange. Nozick describes a productive exchange as one in which both parties are better off after the exchange than they would have been had the exchange never occurred. This goes further than compensation, which only demands that individuals are no worse off than they would have been prior to the relevant encounter.

The state’s theft of taxes and subsequent compensation of its victims is an exchange. Granted, it is an involuntary exchange, but it is an exchange nonetheless. Theft is generally an unproductive exchange, whether the thief gets away, leaving one party worse off, or the thief is made to compensate the victim, leaving neither party better off. Theft of the nature described in section one is notably different. The victim is compensated in excess of that which was taken, and the state has succeeded in its mission. Both parties appear to be better off than before the exchange took place. So here we seem to have what I call a productive theft: a coerced but productive exchange.

To reiterate, Nozick grants of a productive exchange that “I am better off due to it, better off than if your activity was not done or you did not exist at all” (Nozick, 1974, p. 84). Accordingly, Javier is also better off than had the encounter never taken place, better off than had the state not existed at all. Regardless of what we think of the justifiability of taxation, we have to grapple with this reality of being individually better off than were we to have those tax-funded amenities and services suddenly stripped away.

III. Two Objections: Future and Fairness

Nozick raises and disputes an example similar to that which I described in section one when he addresses H.L.A. Hart’s so-called principle of fairness. In the example, Nozick argues that “You may not decide to give me something, for example a book, and then grab money from me to pay for it” (Nozick, 1974, p. 95). He goes on to state even more explicitly that “One cannot, whatever one’s purposes, just act so as to give people benefits and then demand (or seize) payment” (Nozick, 1974, p. 95). Without further context, these appear to be quite damning statements against what I have proposed. However, my example makes no appeal to the principle of fairness—only to Nozick’s own principle of compensation. Nozick makes the statements above as a final volley after five pages of argument denying Hart’s suggestion that (1) individuals can enter into just cooperatives in which they voluntarily restrict certain rights in order to generate benefits for everyone and (2) non-members who enjoy those benefits can be expected to follow suit and restrict their rights as well. Nowhere in my example do I appeal to anything resembling that claim.

I agree with Nozick that utilizing freely distributed benefits as described in the principle of fairness does not create a special obligation to fund those benefits. A more faithful example is the individual who, unsolicited, washes your windshield at a stoplight and then demands payment for the freely given service. The driver received the benefits of the service but has no particular obligation to pay for it. Likewise, my argument makes no claim that you are under a special obligation to pay for the amenities and services that the formerly minimal state decides to offer. My only claim so far is that the state commits theft and then makes its victims whole by compensating them and that the compensation is greater than the victim’s loss. The only special obligation in my example is the obligation of the state to compensate its victims. Again, I raise this because Nozick’s quotes above appear at a glance to contradict my example. However, with greater scrutiny, it is clear that they apply to a wholly different context than the one in which I have been arguing.

A more directly relevant objection might hold that even if we accept the forced exchange I described as an example of just compensation, it would be reasonable to question whether that notion holds several generations later when Javier’s great-granddaughter comes of tax-extracting age in the state. She was born into a world in which those amenities and services already exist. Can the government be said to compensate her with those amenities when they already existed prior to the theft? For one thing, those amenities are not eternal or everlasting. While in the first instance, the government compensates Javier by providing these amenities anew, from whole cloth, by the time his great-granddaughter enters the system, the state is steeped in the business of maintaining and expanding those amenities. One way to see that the compensation is, in that sense, being renewed and reissued constantly, year over year, is to suppose the taxative theft ends. The result: state-run services shut down, and maintenance on the physical infrastructure is discontinued. It all goes away. The services cease to exist instantly, and the physical infrastructure follows in due time as it physically erodes. That reflects the fact that the state is continuously acting to compensate its victims on a regular basis, buttressing, maintaining, and even expanding the amenities and services offered as compensation.

For the purpose of this paper, I declined any attempt to justify taxation for non-protective purposes, morally or otherwise. Instead, I focused on more accurately locating taxative theft within Nozick’s natural rights-based framework for a state. I found that (1) the victims of taxative theft are compensated by their transgressors and (2) the compensation is greater than that which is due, resulting in a productive exchange. As such, based on Nozick’s own understanding, victims of taxative theft are better off than they would have been had the forced exchange not occurred. If given a broader scope, it would be reasonable to continue this line of argument by addressing whether it is rational for individuals to comply with activities that cross their moral boundaries, provided they are generously compensated for the crossing in the way I have described. Additionally, we might consider whether “the state” is the type of entity that can be morally blameworthy in the first place. Short of the opportunity to continue arguing in those veins, I conclude that—leaving aside questions of justification or moral judgment—a state’s collecting of taxes for non-protection purposes productively benefits its taxpayers, leaving them better off than if the transactions had never occurred.

Nozick, R. (1974). Anarchy, state, and utopia. New York : Basic Books.

[1] Due to the volume of citations, narrative references to Nozick (1974) following an initial in-text citation will omit the publication year per section 8.16 of the APA 7^th Ed. Publication Manual. Direct quotes will still be fully cited.