Tuesday, June 21, 2011

Why Is American Taxation Such a Mess?

Fifteen years ago John Steele Gordon explored that question in American Heritage. His leisurely trip through tax history is recommended summer reading. Little has happened since 1996 to invalidate Gordon's verdict on our attempts at taxation with representation:
[T]he means by which the federal government raises revenue violates every single principle of sound taxation developed over the more than five thousand years in which taxes have been collected. These principles are no great mystery. Adam Smith listed four of them in the Wealth of Nations more than two hundred years ago. “I. The subjects of every state ought to contribute towards the support of the government . . . in proportion to the revenue which they respectively enjoy under the protection of the state. . . . II. The tax which each individual is bound to pay ought to be certain, and not arbitrary. . . . III. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it. . . . IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state.”
Gordon explains the origin of such nuttiness as the double taxation of dividends. He also reminds us that the urge to tax the rich existed long before today's income multimillionaires. Back in the 19th century, "Felix Adler, the founder of the Ethical Culture movement, called for a 100 percent tax rate on incomes above the amount needed 'to supply all the comforts and true refinements of life.'”

No comments: