There have been great and powerful men who have moved civilization, but most of the time no heroes can be found, and the world is led by scoundrels, fools, and second-stringers. Taxes, however, are ever present, often making a strong impact upon our lives—for good and evil. The prosperity as well as the decline of nations has always had a tax factor, and this we will see time and again throughout history
–Charles Adams, For Good and Evil
For Good and Evil by Charles Adams is the most comprehensive book on the history of taxation throughout civilization that I have ever read. Adams is an international tax attorney who offers a refreshing perspective on taxation, one you will not find among most practicing tax professionals.
It is a lively book that takes you from Ancient Egypt, Greece, Rome and the Middle Ages, all the way up to present day. It offers a perspective on taxation that you will not find in the current debates surrounding tax reform, and offers some very compelling alternatives and improvements to our existing system.
In order to tempt you to buy a copy of this book and read it, we offer the following tidbits of knowledge you will learn from Adams:
- Taxpayers from the beginning of time have reacted to oppressive taxation in three ways: 1) rampant tax evasion and flight to avoid tax; 2) riots; 3) violence;
- The first casualty of “dumb taxation” has always been liberty; the second casualty has been the wealth and strength of a nation;
- The origins of Hanukkah are rooted in the tax struggles of the ancient Hebrews;
- The Ancient Greeks extracted large amounts of wealth from rich private citizens through the liturgy—the voluntary alternative to progressive taxation. Enforced by tradition and strong public sentiment, most gave three to four times more than what was expected from them;
- Plane Geometry was not invented by Euclid, but rather by ancient tax collectors determining land size for harvest taxes;
- One of the causes of the fall of the Roman Empire was tax evasion;
- William Tell refused to acknowledge the Austrian Hapsburgs and their gang of tax collectors. For this defiance he was ordered to shoot an apple from the head of his son with a crossbow;
- The American Revolution was probably more the consequence of the oppressive administration of taxes than the taxes themselves. Taxation with representation has proven more expensive than taxation without representation;
- In 1787 no citizen of the United States could vote who was not a taxpayer;
- Was the Civil War fought over slavery or Northern Tax policy?
- In 1816 Britons put a tax on newspapers (the “knowledge tax”), designed to curb the opposition press. The tax was levied by the page. Papers today continue to print large pages, which were initiated for tax avoidance;
- Tax laws have taken away liberty more often than foreign invaders;
- All good tax systems tend to go bad.
As Adams Points out: “Polybius, considered the greatest historian of the ancient world, said that the best preparation for politics was the study of history in order to avoid the disasters of others.”
With respect to taxation, there have been plenty of disasters. If enough of us educate ourselves, it may be possible to avoid those historical debacles. Adams reminds us of the wisdom from past thinkers that we have foolishly forgotten.
The Lost Legacy: The Enlightenment Thinkers on Taxation
It is vain to say that enlightened statesmen will be able to adjust these clashing [tax] interests, and render them all subservient to the public good. Enlightened statesmen will not always be at the helm
–James Madison, The Federalist, No. 10, 1787-1788
It has been noted that the principal trouble with the contemporary generation is that it hasn’t read the minutes of the last meeting. With respect to tax policy, this is an understatement. The Enlightenment period (1650 to 1700) was the high watermark for tax wisdom, ethics, jurisprudence and plain common sense, according to Charles Adams in For Good and Evil.
The Enlightenment thinkers knew their history; they searched the world’s governmental systems for what worked and what didn’t, and took the best of many. With regard to taxation, they frequently spoke of the relationship between taxation and despotism and prosperity. Their primary insight was that government exists to maintain our liberty—not our prosperity.
The legacy they left us has largely been forgotten. Listen to the present tax reform debates and you will not hear the ideas and ideals of the Enlightenment thinkers, especially amongst the media and the “tax experts.” Instead, they report on any changes as if it were a sporting event—who wins and who loses, rather than what is good for the whole country.
This is tragic. It is amazing that in a society such as ours—with instantaneous access and ability to transmit information far and wide—we have forgotten the wisdom of these thinkers. It proves that information does not equate to wisdom.
Charles Adams points out:
Perhaps this is an example of the simple truth about life—what comes easy is taken lightly. Our liberty and freedoms were handed down to us by generations past that had to fight for the liberty we now enjoy. Liberty to us is an inheritance, not something we earned or achieved on our own. We take liberty lightly, and we don’t seem to realize how hard it is to get it back once it is lost.
The following is the “priceless legacy” the men of the Enlightenment passed on to us, adapted from For Good and Evil (first edition), Chapter 26.
- Government is at best a necessary evil
Thomas Paine in Common Sense (1776): “Government, even in its best state is but a necessary evil, in its worst state an intolerable one.”
Paine said that taxation was tyranny, and a great destroyer of liberty as well as of property and industry, and it impoverishes the people more than foreign enemies do.
- The imaginary wants of the state
“Baron de Montesquieu in his The Spirit of Laws (1751), a book which greatly influenced the Framers of the U.S. Constitution, explained this problem:
The revenues of the state are a portion of that each subject gives of his property in order to secure or to have the agreeable enjoyment of the remainder.
To fix these revenues in a proper manner, regard should be had both to the necessities of the state and those of the subject. The real wants of the people ought never to give way to the imaginary wants of the state.
Imaginary wants are those which flow from the passions, and from the weakness of the governors, from the charms of an extraordinary project, from the distempered desire of vain glory and from a certain impotency of mind incapable of withstanding the attacks of fancy. Often has it happened that ministers of a restless disposition, have imagined that the wants of the state were those of their own little and ignoble souls.”
- Government should stay out of business
Adam Smith in The Wealth of Nations:
Princes, however, have frequently engaged in many other mercantile projects, and have been willing, like private persons, to mend their fortunes by becoming adventurers in the common branches of trade. They have scarce ever succeeded. The profusion with which the affairs of princes are always managed, renders it almost impossible that they should. The agents of the prince regard the wealth of their master as inexhaustible; are careless in what price they buy, are careless in what price they sell; are careless at what expense.
Two words: Post Office.
- Liberty carries the seed of its own destruction
Montesquieu noted that people living in a state of liberty tend to let their guard down and tolerate great taxes, but once granted they discover they cannot take a backward step: “Liberty produces excessive taxes; the effect of excessive taxes is slavery.”
- Direct taxes are the badge of slavery, and indirect taxes the badge of liberty
Again Montesquieu: “Capitation [direct taxes on the individual] is more natural to slavery; a duty on merchandise is more natural to liberty, because it has not so direct a relation to the person.”
Recall that the Supreme Court ruled the 1894 income tax unconstitutional because it was a direct tax (thus had to be apportioned amongst the states).
- Tax evasion is not a criminal act
Tax evasion is the consequence of excessive taxation, it’s a “positive offense” because it’s one manufactured by the state, not worthy of being called a true crime.
Taxation means forced exaction. Taxes aren’t debts, no principle of fair value received, which is basis for legally enforceable debt.
The US Treasury Department defines a tax as: “A compulsory payment for which no specific benefit is received in return.”
A tax is owed because the government says so, nothing else is required. You can’t be put in prison for not paying your VISA bill.
- Liberty’s most dangerous foe: arbitrary taxation
“But the most pernicious of all taxes are the arbitrary. They are commonly converted, by their management, into punishments on industry…It is surprising, therefore, to see them have place among any civilized people.” If any of the following three principles are violated, the taxation was considered arbitrary:
- Taxation must be with consent.
- Have to be apportioned among the people by a definite standard or rule.
- Must be equal, counter to the inclination of everyone to push their taxes off onto someone else.
- Common sense economics: the supply-siders
Not a new theory at all, goes back into antiquity.
- The marks of a bad tax system: Adam Smith’s four points:
1. A tax was bad that required a large bureaucracy for administration.
2. A tax was bad that “may obstruct the industry of the people, and discouraged them from applying to certain branches of business which might give maintenance and employment to great multitudes. While it obliges the people to pay, it may thus diminish, or perhaps destroy, some of the funds which might enable them more easily to do so.”
3. A tax was bad that encouraged evasion. “The law, contrary to all the ordinary principles of justice, first creates the temptation, and then punishes those who yield to it.”
4. A tax is bad that puts the people through “odious examinations of the tax-gatherers, and exposes them to much unnecessary trouble, vexation, and oppression…It is in some one or other of these four different ways that taxes are frequently so much more burdensome to the people than they are beneficial to the sovereign.”
- What a good tax system should be: Lord Kames’s six rules:
Lord Henry Home Kames, a scholar of that era, published his Sketches on the History of Man (1769), which analyzed tax issues and greatly influenced Adam Smith. Here are Kames’ “Rules to be observed in Taxing”:
- “When the opportunity for evasion exists, taxes must be moderate. It is unjust for a legislature ‘first to tempt and then to punish’ for yielding to temptation.”
- Taxes that are expensive to levy should be avoided.
- Arbitrary taxes are “disgustful to all.” The amount paid is determined by the “vague and conjectured opinion of others.”
- To remedy the “inequity of riches,” the poor should be relieved of any significant tax burdens.
- Taxes that sap the strength of a nation should be avoided. Such taxes “contradict the very nature of government, which is to protect not oppress.”
- Taxes that require an oath are to be avoided. Said Kames:
Perjury has dwindled into a venial transgression and scarcely held an imputation to any man’s character…Lamentable indeed has been the conduct of our legislature: instead of laws for reforming and improving morals, the imprudent multiplication of oaths [for tax enforcement] has not only spread corruption through every rank, but by annihilating the authority of the oath over conscience, has rendered it ineffectual.
The U.S. Supreme Court condemned the use of oaths for tax administration as late as 1885, Boyd v. United States, 116 U.S. 616, 631.
How many of these tests would our present-day tax system meet?
Very important question:
Have we squandered our inheritance?
Those who have no concern for their ancestors will have none for their descendants
To know nothing of what happened before you were born is to remain ever a child
You can watch an hour long interview with Charles Adams from Booknotes here.