Modern Age - Fall 2015 - 46

MODERN AGE

FALL 2015

that taxing everyone an equal proportion of income (the biblical
"tithe" or 10 percent) was the just way to share the cost of government. To understand the sudden prominence of progressive
taxation, it is necessary to look at what the economic theorists had
been writing.
Adam Smith's Wealth of Nations provides a compendium of
the best economic thinking circa 1776. His four Maxims of Taxation (5.2.2) are frequently cited and still cogent, and it is maxim 1
that is especially pertinent here:
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.

Smith's advice and discussion have held up remarkably well for
more than two centuries, but note that in this maxim, he slurred
over the distinction between taxes as a price for the benefits
received from government by the taxpayer (the benefit principle)
and taxes as a measure of the ability of the individual to pay or the
sacrifice that is inflicted on the taxpayer (ability-to-pay principle).
He papers over the distinction by assuming that both approaches
point to taxes proportional to income, although in other passages
Smith suggests that additional taxes on luxury goods are acceptable because they fall only on the rich for goods they need only
to display their status. A great deal of public-finance literature
since Wicksell has dealt with the benefit principle.6
Presumably, it is fair, and certainly efficient, to charge for services that can be directly or indirectly priced; for example, charge
tolls on limited-access highways and finance construction of roads
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Modern Age - Fall 2015

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