When taxation becomes a weapon, not a tool

Fox News reports that Governor Gavin Newsom of California has signed a 25% tax levied specifically on private detention centers — every ICE facility in the state, their profits targeted directly. The stated purpose is not to fill the public treasury but to make a particular business uneconomical, to drive it from the field by fiscal force rather than by legal prohibition. I want to examine that purpose carefully, because the distinction matters enormously to anyone who cares about the institutional framework within which markets — and governments — must operate.

I have always held that taxation is a legitimate instrument of the sovereign, necessary to fund defense, justice, infrastructure, and education — the four pillars without which no market can function honestly. But taxation levied not to raise revenue in proportion to means, but to extinguish a specific commerce that the sovereign dislikes, is a different instrument entirely. It is closer to what I criticized in the mercantile system: the use of public power to favor one set of interests over another, to pick winners and losers not by the verdict of free exchange but by the decree of the magistrate. The merchant who lobbied Parliament for a protective duty and the governor who taxes a rival industry into oblivion are, in principle, engaged in the same maneuver — only the direction of the thumb on the scale has changed.

Now, I must be careful here, and honest about the limits of my knowledge. The underlying question — whether the federal government may lawfully contract with private firms to detain persons, and whether a state may tax those contracts out of existence — is a constitutional question of a kind I cannot resolve from my own principles alone. What I can say is this: if the federal sovereign has, under the law, established a lawful commerce, and a state sovereign uses the taxing power to nullify that commerce within its borders, we have not a market correction but a conflict of jurisdictions. That is a matter for courts, not for price signals. The rule of law, which I regard as the very precondition of honest exchange, requires that disputes between sovereigns be settled by legal process, not by fiscal siege.

There is also the question of the private firms themselves. I am no defender of every enterprise that calls itself a business. I wrote at length — and I trust the reader will forgive me for returning to the point — about the East India Company, a private body that had captured its sovereign, extracted monopoly rents, and exercised coercive power over millions without democratic accountability. If private detention firms exercise coercive power over persons — and by inference, they do, since detention is coercion — then the institutional question is urgent: what framework disciplines that power? Who inspects, who adjudicates grievances, who sets minimum standards of treatment? A 25% tax answers none of those questions. It simply raises the price of the arrangement, which will be passed to the federal contractor, which is to say, ultimately, to the public purse.

The deeper principle I would leave with the reader is this: the proper corrective for a commerce that harms persons is law and regulation — clear standards, honest enforcement, judicial remedy. The proper corrective for a commerce the sovereign merely dislikes on political grounds is democratic debate and, if the majority agrees, legislative prohibition or structural reform. What is not proper — because it corrodes the institutional trust on which both markets and government depend — is the use of a neutral-sounding instrument like the tax code to accomplish, by fiscal attrition, what one lacks the political majority to accomplish by direct legislation. When taxation becomes a weapon aimed at a specific enemy rather than a general contribution levied on all, it ceases to be taxation in the honest sense, and becomes something more troubling: the privatization of public power for factional ends. That habit of mind, wherever it takes root, is the enemy of the rule of law — and without the rule of law, no exchange, commercial or civic, can long remain honest.