Why Pay Taxes?

The inevitability of death and taxes is axiomatic.  Or is it?  Not for some.  Devoted Christians conjure eternal life in the hereafter—requiring a mere pledge of obeisance to Jesus—while fiscal conservatives imagine a heavenly place where anteing up to Uncle Sam is passé.

Which utopian vision is more fanciful?  That’s easy.  While existence of God is at least debatable, the necessity of taxes isn’t.  As Oliver Wendell Holmes famously observed, taxes are the price of civilization.  With them government furnishes those public goods—national defense, police protection, infrastructure, etc.—which undergird well-functioning societies (the same ones, typically, that Pollyannas waxing lyrical about the wonders of laissez faire call home).   Places with feeble tax collection, by contrast, have enfeebled governments.  It’s not pretty.  Think Pakistan, a “Republican Eden,” according to the New York Times’ Nicholas Kristof, where less than two percent of its population pays taxes.  Not coincidently, the quasi-feudal state is on the precipice.

In a thoughtful essay in Vanity Fair entitled, “Dumb and Debt,” Simon Johnson and James Kwak recount how one of America’s greatest thinkers, Alexander Hamilton, grew to adopt fiscal policies that set the young country on a course for global hegemony.  Hamilton’s experience as a young military officer in the Revolutionary War shaped his views.

At the time of America’s fight for independence, France, not England, seemed the best placed to reign supreme.  Its population was twice that of its British rival.  So was its economy.  And unlike the UK, which had endured a century of turmoil that had seen the overthrow, restoration, and re-overthrow of its monarchy, France was a bastion of stability.  Yet it was England that proudly stood astride the world, having just defeated its Gallic adversary in the Seven Years’ War from 1756 to 1763.

England’s ability to project power vexed Hamilton.  The tiny island-nation could call on as many as 25,000 experienced soldiers on American soil, while the colonial upstarts had troubling mustering half that number.  The future Secretary of State, then an aide-de-camp and confidant to General Washington, wondered what was England’s trick.  What made it so maddeningly successful?

The country’s ability to efficiently collect taxes, those ghastly contrivances that GOP presidential candidate Ron Paul calls “immoral,” was one source of its strength.  Unlike France, whose public sector was riddled by corruption, Britain’s bureaucracy was modern and professional.  Effectively, it’s own Internal Revenue Service (gasp!) worked.

Equally important, the British parliament’s control of taxation legitimized the country’s fiscal policy, therefore giving the UK excellent credit since, as Johnson and Kwak observe, “Without the ability to tax effectively, no debt will be credible.”  From this virtuous cycle flowed power, as a country’s ability to fight wars hinges on its capacity to finance a national defense, often by borrowing.  Thus, credit-worthy Britannia ruled the waves, not the Tricolors whose cantankerous monarch tended to stiff creditors even when his government could raise revenues.

All this was not lost on Hamilton and the Republic’s other founders who were fashioning their new country’s fiscal policy after vanquishing Britain.  Once installed as the nation’s first Secretary of Treasury, Hamilton proposed and won enactment of a measure to have the federal government assume the considerable debts accumulated by the states in return for its having the ability to levy limited taxes on liquor, tea, and coffee.  The measure sparked the “Whisky Rebellion” by disgruntled farmers in Pennsylvania, but the uprising was easily suppressed.  The episode set an important precedent: The federal government had, and would exercise, the right to tax its citizenry.

Not that this settled the matter.  In 1861, President Lincoln instituted the country’s first federal income tax to finance the Civil War, only to have it repealed by Congress in 1871.   Congress eventually saw the wisdom of having access to revenues and enacted its own income tax on high earners several decades later, but this time the Supreme Court invalidated it on grounds that the law was a “communistic threat.”  In 1913, however, the 16th Amendment to the Constitution was ratified, enshrining the right of the federal government to levy an income tax.

This history bears out a grudging recognition by most Americans that a modern state requires taxation, though an obstinate few refuse to concede as much.  Which brings us to the present.  Though total federal revenues as a percentage of GDP have not been lower since the Eisenhower administration, many conservatives grouse about the injustice of the tax burden.  The “Taxed Enough Party” has mounted its own modern-day Whisky Rebellion.

This reaction might be seen not just as a conservative backlash, but one against civilization itself and the public goods that makes it possible.  But then, our society’s demise might not be such a bad thing, at least for those who believe that taxes and death aren’t inevitable.  Their utopias await.

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