Would it be possible if a government were to run on selling services to the people (like a business) and not have any sort of tax as an income? For example, you could actually buy your own healthcare package provided by the government like auto insurance. Military defense, education, infrastructure, and hospitals can be provided by the private industry. What kind of economy would this bring? Your thoughts.
Governments with no income tax are quite realistic under a number of scenarios. But government with no taxes at all (property, excise, customs duties etc.) seems very unrealistic.
This might work in a form of "government corporation" that, on one hand, makes profit through traditional commerce, while on the other it is in charge of foreign policy, law enforcement and all other things that are normally associated with a government.
Who says taxes are not payment for a service. Taxes could easily be seen as payment to participate in said regions services, you get a broad range of services provided for your payment whether you use them or not, like channels in cable package. Because many of these services are provided to a region and not an individual basis (roads being a prime example) it is easier to just say everyone in the region has to pay and anyone who does not want the services has to leave becasue excluding them would be impractical or insanely costly. We add certain services to the blanket service becasue certain things just work way better when provided to everyone instead of on a limited availability. Education is a great example, education benefits everyone in the society not just those that receive it, so it is in everyone's best interest to make sure everyone receives it, and the ones who need it are the least able to pay for it.
A nation without any tax at all would most likely be a stretch. I'm also gonna have to dodge a good number of "can o' worms" to answer this.
Let's consider the services.
- Many nations currently do have you buy your own health insurance, etc. There are many issues with this, such as low income individuals not being able to get it. This places a burden on the lower class, as they cannot access the cheap healthcare that the middle and upper class can access. The middle class is slightly handicapped, but they can afford it and get by.
- You could have services such as education be purchases (this is what private schooling is). Having no public education option would decrease the ability of low income (and some middle class) individuals to move up in class. Overall, expect a dramatic lack of social mobility. Assuming these schools run like private schools, the government would have little ability to control what the population is learning. Expect high deviation from the government.
- There is not really any feasible way to use this method with infrastructure and military. The military protects the border and the land of the nation, not the individual people. Not protecting citizens would pretty much break the Social Contract and the citizens who aren't protected would have little reason to abide by the laws of the land. Infrastructure is a communal thing; no individual is going to pay for a highway to be built. You'd end up having groups (like the city) make deals with the people to pay for infrastructure, which is basically taxes. If I am overlooking some possibility, please say so in the comments of this answer. I will not bother saying how a private army is a bad idea; it frankly should be obvious.
- Having emergency services be applicable to this method would also cause a lot of problems. Suddenly, the police profit from stopping crime; why would they want it to go away? Suddenly, the firefighters profit from stopping fires; why would they them not to happen? Suddenly, the paramedics profit from injured people; why would they want them to be healthy? This may seem pessimistic, but the invisible hand guides it. Human decency is still there, but human decency often seems lacking when looked for in a company, especially in a large corporation.
Overall, you'd end up with a land in which the upper class ruled, the middle class worked, and the lower class starved. Think of a medieval nation. You'd end up having the nobility and the peasants, as money speaks volumes and works miracles. I'd also expect a lot of corruption, but I'm not sure of that.
This sounds like a dystopia to me.
Let's consider other sources of income.
Going away from purchasing services, a nation could (in some truly unique scenario) provide public services without taking up taxes.
- A nation could be a truly amazing trading juggernaut. It's possible that the exports of the nation could net enough income to provide minimal public services.
- A nation could just constantly borrow money, but that nation would likely not last long. This is getting into economics (a world of true unpredictability), so nothing can be said for certain, but I would expect a nation like that to go into a death spiral (like Greece but much worse) fairly quickly into it's No-Taxes-All-Loans program.
Why involve the government? In most of it, it just adds an extra level of management.
Health care can be provided by private operators. Most hospitals are operated privately now. They may be government subsidized, but they are either non-profit or for-profit corporations. The Veteran's Administration system is an exception to this.
There are thoughts about how to provide education privately. These mostly come down to loans and sponsorships from employers. However, any program like this would have to explain why it would work in this world when it doesn't work in ours. There is no program like this in Africa or South America, where many governments are too poor to provide strong educational opportunities. Why would it suddenly start working in this imaginary world?
There is a lot of theory about how to provide infrastructure privately. This often comes through developers and tolls. For example, the house builder may be responsible for building water and sewer lines. As more houses are added in the same area, they buy access from the original buyer. Airports often are privately managed, particularly outside the United States. Toll roads are managed via user fees.
Courts already charge fees. Perhaps they could be raised to cover all costs.
In the US, utilities are largely fee-based and privately operated (albeit heavily regulated) now.
Military and law enforcement don't do well under this model though. If your neighbor, let's call him Mitt Romney, pays tens of millions of dollars for military protection, you can freeload from him. Because it's pretty hard to invade at the housing level. This is why countries pay for militaries. Because that's the level at which they operate. Similarly, most law enforcement is provided at the municipal level, with some rural areas operating at the county level. Because if you are patrolling a street, you don't just ignore crimes at houses that don't pay full price for law enforcement. Economically, these industries are said to have increasing returns to scale.
The primary reason to involve government in such things is its ability to fund through taxes. Take away the funding mechanism as you propose takes away the reason for government participation. Privately operated but government funded is one thing. There are reasons to do that. But there are no reasons to be government operated and privately funded. Cut the government out of the loop entirely. So if you somehow got in that circumstance, expect it to be unstable. Either they'd switch to private operation or to government funding.
See The Machinery of Freedom (also available as an actual book). It details how to disassemble a government and arrange, one by one, for each of the services that a typical government provides to be handled instead by private industry. The results of this process, however, are not likely to be anything you would recognize as a "government" anymore, though; it is rather an anarchic society without any government, so that might not quite count for a "government without taxes".
The next closest thing I can think of would be something similar to the Medieval Icelandic system. You have a group of "lords" who meet in a central assembly (the "Allthing" in Iceland's case) to discuss legal issues pertaining to the whole country, but unlike traditional lords, they do not rule over any fixed area of land, nor are the positions necessarily inherited. Rather, a lordship must be purchased, thus providing funding to the national/federal government, and any person can choose to "subscribe" to the authority of any lord they wish, regardless of where they live, paying him for his governmental services, which include such things are arbitration (i.e., providing access to a court system and resolving disputes within his constituency, and between his constituency and others), police and military defense, and so forth. In this set-up, everyone ends up paying pretty much the same amount of money for pretty much the same stuff, but the fact that it is all voluntary means you can reasonably call it "fees for services rendered" rather than "taxes". It is also viable for someone to simply choose not to pay for the protection of any lord at all, in which case they would be considered a literal outlaw- not covered by anyone's jurisdiction under the law, such that they have no recourse against crimes or torts committed against them. Worst case, if they are particularly disliked, it becomes effectively legal to kill them (a status which can also be conferred as a punishment for crimes, if no lord will accept you as a client).
You can if you charge rent, technically
If the government owns all the land, you can charge rent for the land people own, you can use that to fund the government. You can even allow people to buy and sell the leases, allowing you to still have a real estate market. This is basically property tax, but technically it isn't.
Look at prisons as an example. Privatized prisons in the USA has caused this country to have one of the highest incarceration rates around because thats how the people owning the prisons make money. So I can't see how doing the same with things like hospitals and such going any better.
The most important job of government is not the provision of services, which as your question suggests could be done with varying degrees of efficiency by the private sector. Rather, it's the involuntary redistribution of wealth, to level out the gross imbalances in the market value of different citizens (from negative to around $100 billion). Since you can't do this without taxation, you cannot have a properly functioning government without taxation.