The time has come, the politicians say, to talk of many things, including taxes and accelerated economic growth. That is, if we can get a conversation going. Which won’t be easy. “No new taxes,” chants the Tea Party chorus. “We must have new revenues,” responds a White House-led group that sees “the rich” as an AMT machine to be hit repeatedly to shore up a variety of social programs, failures and successes alike, and the government-funded infrastructure projects so beloved of the trade unions. If you belong to either the no-new-taxes or revenues-ubber-alles tendency, read no further.
If, on the other hand, you as a conservative think that new revenues might just be needed, perhaps if only in order to make a deal, and if you as a liberal are willing to consider the possibility that there are funding methods that do not further explode the size of government or the burden of general taxation, consider the words of that old revenue collector, Adam Smith.
"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation."
Some choose to read this to mean a flat percentage, which would require higher-income tax payers to pay absolutely more, but only the same percentage of their incomes as lower-income citizens. But Smith makes it clear that he favors having some pay a higher proportion of their incomes “to contribute to the public expence, not only in proportion to their revenue, but something more than in proportion.” Not every Democratic argument is brand new and radical.
Of course, this general guide leaves room for disagreement over just what rates Smith might have had in mind, and at what income levels. But it leaves no room to argue that that the wealthiest members of society should pay the lower capital gains rate on income they choose to call “carried interest” than a wage-earner pays on his far lower earnings. Or that a major corporation, benefitting from what Smith calls “the protection of the state”—these same companies would howl for our government to intervene on their behalf if faced with nationalization or some sort of discrimination by foreign governments—should pay no or little taxes while making billions in sales under the protection of U.S. law and benefitting from the infrastructure paid for by the taxes of other people. True, recipients of dividends from these corporations pay taxes, as do the executives on the portion of the salaries and bonuses that their lawyers are unable to shelter, but the corporation is a “legal person” separate from the individuals who own it, conferring on its owners the benefit of limited liability and constitutional protections, and therefore an appropriate subject of taxation.
For those who prefer an authority instead of, or in addition to, the great Scot, see Luke 12:48.
If Republicans, remembering the fate of the President who asked voters to watch his lips, or having a preference for tea parties, find the support of Adam Smith and Luke insufficient to embolden them to support new revenues, they might ask their Democratic colleagues, who automatically assume that infrastructure needs justifies raising taxes on the wealthy, to join them in dipping further into their undoubtedly dog-eared copies of the Wealth of Nations.
User fees, Smith tells us, afford revenue to society “without bringing any burden upon the general revenue of society.” Roads, bridges and other public works—infrastructure—should be financed by “a particular revenue sufficient for defraying their own expence, without bringing any burden upon the general revenue of the society” [and should] be “supported by the commerce which is carried on by means of them.”
Think converting free to toll roads, higher fees for use of government agencies such as the SEC and the FCC, and vehicle fees that fully reflect the cost and value of the use of roads (gasoline taxes charge older vehicles more per mile for road use than newer ones, and give electric vehicles and cyclists a free ride). In short, imagine a nation with adequate infrastructure to support its commerce, while at the same time avoiding further growth of its government and an increase in the burden of general taxation. Those who benefit indirectly from superior infrastructure—good roads lower transport costs and therefore the price of many goods—would avoid directly paying their fair share of infrastructure costs, but the prices they pay for goods would include the pass-on in prices of taxes paid by infrastructure users.
There it is—if our politicians are really interested in increasing the wealth of our nation and the fairness of our tax system, they might take a look at the policies long ago proposed by a man who, uninterrupted by television interviews and sound bites, really thought through just how to get an economy moving.
Irwin Stelzer is a senior fellow and director of Hudson Institute’s economic policy studies group.
