Tom Wright’s Axioms of Taxation
Being, basically, a simple man, I always look for a few, absolute – and usually simple ‑ truths fundamental to any subject I study. After I have blown away the chaff, I prioritize such truths from primary to those of lesser importance. Taking a clue from my father, being a good student of history also helps. Once I have these fundamentals prioritized, I can then determine the value of new data or a new proposal by how well it aligns with the fundamentals. If new data do not align, discard them. If new data align, these are apt to be both true and applicable. Here are some axioms of taxation I have discerned over the years.
people pay taxes.
There are those who would tell you to tax a corporation or a church or a small business. Here is the truth. All tax money always comes out of someone’s personal pocket. This is not a fight between Wall Street and Main Street or between Easy Street and Tobacco Road, this is simply an axiom of taxation.
Step 1: Tax a corporation and they raise prices. Those with the least are hurt the most.
Step 2: When that corporation has raised its prices as much as it can, it seeks to lower its cost of labor. Those with the least lose the most jobs.
Step 3: With prices as high as competition allows and labor costs as low as practical, any further taxation comes out of owner’s pockets. Mom & Pop get no retirement and union pension funds (invested in Corporate America) get lousy performance. Only people pay taxes!
taxes are the oldest form of taxation for many good reasons.
When Phoenician traders traded Grecian grain for Briton tin, they would pay a safe port with a percentage of their cargo. Really safe ports with reasonable fees were frequented and flourished. Unsafe ports or those with exorbitant fees withered. Consumption taxes are also the oldest form of taxation because they require the least infrastructure and, when modest, require the least enforcement.
tax rates are self-limiting.
“It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension [expansion] of the revenue. . . . If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.”
Sound like Art Laffer of the Laffer Curve and Reaganomics? No, Alexander Hamilton from Federalist 21, written in 1787.
taxes, throughout history, have fostered civil liberties, supported republican or democratic forms of
government, and expanded the economies in which they were applied – and
required the smallest, least expensive, least intrusive infrastructure.
A corollary to this the feature that consumption taxes only tax actual economic transactions, as demonstrated in #2 above. You are only taxed if you are in the game.
taxes (income taxes/poll taxes/head taxes), throughout history have been the
tools of tyranny, used by despots to
control the opportunities and behavior of their subjects, sundered civil
liberties, and invariably collapsed the economies in which they were applied –
and required ever-growing, ever-more expensive, and ever-more intrusive
infrastructure inevitably including draconian enforcement.
A corollary to this is the oppression of a tax that taxes those who simply exist, outside of any economic transaction. People are taxed simply because they are standing there, a huge burden to those with the least. For instance, a huge burden to today’s retirees who thought their home was paid for. With direct taxes, you are taxed even if you are out of the game.
of taxation wards off government thugs.
When all citizens are taxed in exactly the same manner, this prevents government from rewarding its friends and punishing its enemies. The primary purpose of government is to keep thugs from troubling citizens. Inequitable taxation invariably leads to the government, itself, becoming a thug.