For Good and Evil: the Impact of Taxes

“The utopian, immanent, and continually frustrated goal of the modern state is to reduce the chaotic, disorderly, constantly changing social reality beneath it to something more closely resembling the administrative grid of its observations.”

James C. Scott

If you've been reading the Flophouse then you know that taxes are a frequent topic here. Frankly, I am less interested in the mechanics of taxation than I am in what I have heard referred to as the sociology of taxation.   Underneath all tax issues, I am learning, are a host of social and psychological factors.    

The Australian Tax Office (ATO) has done some fascinating research about this and Ken Devos in his book Factors Influencing Individual Taxpayer Compliance Behaviour does a fine job of summarizing their work.  In particular, the discussion around "tax moral" - how taxpayers view taxes in light of their beliefs and societal norms - was illuminating.  Any lawmaker or citizen who says that the feelings of the citizenry around taxes don't matter because "the law is the law" is delusional.  The lower the tax moral, the lower the rate of voluntary compliance, which means less tax revenue.  Not simply because people don't pay, but because more and more tax money must be diverted to administration and enforcement.

Perceptions, ethics, and social systems matter.   The battle for hearts and minds and wallets is conducted in the political arena where different interests squabble over the meaning of "fair" or "equitable".  For every tax or tax system there are attempts at persuasion - mostly transparent morality tales that paint the uncooperative citizens or the greedy grasping government in the blackest possible terms.  

When I picked up Charles Adams' book For Good and Evil:  the Impact of Taxes on the Course of Civilization, that is exactly what I was expecting - a polemic on good and evil taxes and tax systems - all the more since I had a vague impression that Mr. Adams was something of a libertarian.  Whatever his ideology, he did a very good job of putting those opinions firmly in the background.  A careful reading of the text will expose them, but they are not the focus of his book.

Instead Adams tells a series of stories about taxes, tax systems and strategies going back to antiquity.  It is not a definitive history of taxation by any means, but it is not a bad place to begin thinking about the historical context and to see how the social, psychological and even religious context around taxation has always mattered a great deal.

How interesting to read that taxpayers in the Middle Ages had "God on their side."  Unjust or excessive taxation on the part of kings was a sin and incurred the wrath of God.  Conversely, a king who taxed justly and modestly would enjoy peace, prosperity and be "blessed with many sons."

New (or unheard of) taxes were particularly odious.  This principle was called exactio inaudita (which we can summarize as "no new taxes")  and greatly limited the raising of revenue by royalty.  Europe's rulers were daunted by this until they found a population that, in their eyes, did not have God on their side - the Jewish people - and laid that burden upon them.

Taxes played a role in the spread of Islam. The jaliya was a tax on Jews, Christian and other non-believers.  Since Moslems did not pay it, the fastest and easiest way to relieve one's tax burden was to convert.

Adams point out that this was very close to the Greek practice of taxing foreigners, not citizens. In ancient Athens foreigners paid a monthly tax called the metoikion.  The opposite of modern citizenship-based taxation, and completely contrary to the notion that taxes are a responsibility of citizens, only non-citizens (metics) were consistently and directly taxed.  Citizens themselves were only directly taxed in extraordinary emergency circumstances like war - the eisphora.  Not only were these taxes canceled once the reason for them was over, "if there was any booty from the war it was used to repay or refund the eisphora."

Those who rail against international tax competition in our day should know that, far from being a new phenomenon brought on by 20th century globalization, it has a long and venerable history.

Around the 4th century B.C., says, Adams,  the island of Rhodes became a thriving center of banking and commerce. Internally, it was politically stable.  Externally, it successfully avoided becoming embroiled in other countries' conflicts.  Rhodes was also a port of call for ships coming from the east to deliver cargo to Rome and Greece.  The port charged a 2% harbor tax "based on the value of the cargo, even if the cargo remained on board."  When Rhodes found itself in conflict with Rome, the Romans attacked them indirectly by creating another port in 166 B.C. on the isle of Delos which, in addition to possessing good facilities and services, was tax free.  The result?

"The trade of the east immediately bypassed Rhodes and went to Delos.  In one year trade declined by 85 percent.  Annual tax receipts, which normally had run about 1 million silver drachmas, declined to 150,000."

Which just goes to show that "harmful tax competition" has at least  a 2,000 year-old pedigree.

"Tax habits could be to civilization what sex habits are to personality.  They are basic clues to the way a society behaves."  Ideas about what is "fair" and "equitable" change - surely the Christians of the middle ages in Europe found taxing the Jews to be very fair indeed, and the Athenians had no problem exempting their citizen-selves from any direct tax obligations.  What do today's most pressing tax issues tell us about the societies in which we live?

For the most part, Adams tells his stories straight without manipulative moralizing.  He believes that taxes can be a force for good, are necessary for civilization,  and have "built great nations and brought much good to their inhabitants."

But he also argues that there are taxes and tax systems so bad that they actually undermine the civilizations they are meant to support.  Tax systems that are overly complex and ultimately unenforceable generate contempt, not revenue.   Governments that approach their citizens or subjects with arrogance, and rely mostly on compulsion to fill their coffers, fare badly as avoidance and evasion become rampant.  And anyone who believes that harsher laws and draconian punishments are the only proper response to widespread non-compliance should take a few moments to look at the ATO research.

And while we are speaking of punishment -  if it is good, right and necessary for taxpayers to be under threat, then surely a case can be made that governments and their agents need it too in order to be properly motivated and compliant with their responsibilities to those they govern.

In ancient Egypt under the pharoah Haremhab "a tax-collecting scribe found guilty of overcharging a taxpayer was sentenced to have his nose cut off, followed by banishment to a desolate part of Arabia."

With that kind of punishment, and if we could convince the US Congress that taxing simply and coherently would "bless them with many sons", the bureaucrats and lawmakers just might find the motivation to undertake that politically dangerous but desperately-needed tax reform.