Reportedly, vice presidential candidate Tim Walz “created ‘the most progressive tax system in the country’ for Minnesota.” Pundits believe this will help Kamala Harris in her tax proposals. It will probably do that . . . but are Harris’s tax proposals what is needed? Come to think of it, are Trump’s tax proposals any better?
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| Georg Friedrich Knapp |
From the Just Third Way perspective, and speaking frankly, it’s six of one, half a dozen of the other. Neither set of candidates understands taxation to begin with, and it would only be by remarkable, possibly even providential coincidence that either package of tax proposals would even vaguely approach what the United States needs at this time or at any other.
To continue speaking frankly, today’s view of taxation is firmly rooted in the Keynesian economics that has had most of the world in thrall for nearly a century. The classic idea of taxation is to raise money to defray the costs of government. The idea of taxation in the Keynesian economic model, however, is what is euphemistically termed “social engineering,” i.e., governmental control.
That’s because in the Keynesian system, which is based on the “chartalism” of the socialist economist Georg Friedrich Knapp (at least according to Keynes’s own statement in Volume I of his Treatise on Money), taxation is not needed for revenue. All money the government needs to finance its own operations can be issued at will simply by government emitting more debt. As the government expands its control over the whole of civil life, all money will be issued by the government.
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| John Maynard Keynes |
And that can create a problem. What if there is too much floating around? According to Knapp’s “State Theory of Money” (Die Staatliche Theorie des Geldes), just as the government issues all money to provide the medium of exchange for the entire economy, it taxes it away if there is too much money in the economy.
Somehow that last bit got lost in translation. This is because in the Keynesian system, private sector capitalists under the control of the government (state capitalism, a.k.a. “socialism”), need lots and lots of money to invest in new capital formation to create jobs for people that need them. Taxing the rich therefore means fewer jobs for the poor.
At the same time, inflation caused by too much money in the economy that cannot be taxed away because it’s needed to create jobs raises prices, lowers consumer demand, and reduces the demand for production and thus the need for new jobs and eliminates existing jobs as well. As can be seen, the illogic of Keynesian economics leads to a tax philosophy that contradicts both the classic taxation-as-revenue principle and the Knappian taxation-to-reduce-excess-money-in-the-economy principle.
So, what is the Keynesian tax philosophy? Whatever enhances the power of the wealthy elite. Democratic or Republican tax policy, it doesn’t matter; as somebody or other said, it doesn’t matter who is in charge, the only thing that changes for the poor is the name. For Democrats, tax policy is a way to increase the power of the political elite. For Republicans, tax policy is a way to increase the power of the economic elite.
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| John Locke |
Is there a tax policy that increases — or at least doesn’t decrease — the power of ordinary people? Yes — but to answer that, let’s first reiterate the classic principle of taxation: to raise money to defray the costs of government. As John Locke noted in his Second Treatise on Government,
’Tis true, Governments cannot be supported without great Charge, and ‘tis fit every one who enjoys his share of the Protection, should pay out of his Estate his proportion for the maintenance of it. But still it must be with his own Consent, i.e., the Consent of the Majority, given it either by themselves, or their Representatives chosen by them. For if any one shall claim a Power to lay and levy Taxes on the People, by his own Authority, and without such consent of the People, he thereby invades the Fundamental Law of Property, and subverts the end of Government. For what property have I in that which another may by right take, when he pleases to himself?
In other words, taxation is not supposed to be a way government controls people . . . but a way people control government, and it has only one legitimate purpose: to raise money to defray the legitimate costs of government. That being the case, in The Wealth of Nations Adam Smith presented four “canons” of taxation from which it is dangerous to depart:
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| Adam Smith |
· Efficiency. The tax system should ordinarily generate sufficient funds for the government to meet legitimate expenditures.
· Understandability. An adult of ordinary intelligence should be able to understand the tax code.
· Equity. People should be taxed on their ability to pay.
· Benefit. People should be taxed in accordance with the benefits they receive.
Pope Leo XIII
Now, even Smith admitted that “Equity” and “Benefit” often come into conflict, and not just when the government engages in redistribution, justified or not. When that happens, as Smith explained and Pope Leo XIII agreed in § 22 of Rerum Novarum, justice demands that people receive more benefits than they are otherwise due:
True, no one is commanded to distribute to others that which is required for his own needs and those of his household; nor even to give away what is reasonably required to keep up becomingly his condition in life, “for no one ought to live other than becomingly.” But, when what necessity demands has been supplied, and one's standing fairly taken thought for, it becomes a duty to give to the indigent out of what remains over. “Of that which remaineth, give alms.” It is a duty, not of justice (save in extreme cases), but of Christian charity — a duty not enforced by human law.
Note the caveat, however. Smith only implied, but Leo XIII came right out and said redistribution is only justified in “extreme cases.” Otherwise, people are expected to take care of themselves and contribute their fair share to the public weal, i.e., pay their fair share of taxes . . . until Keynesian taxation philosophy takes over and puts government in charge of economic life, turning taxation into a means of controlling people instead of being controlled by them. That is why both Smith and Leo XIII warned against excessive taxation, while the Keynesian model (copying Karl Marx) posits a heavy and progressive system of taxation. As Leo XIII explained in § 46 of Rerum Novarum,
These three important benefits, however [viz., equitably divided property, material abundance, and love of country], can be reckoned on only provided that a man's means be not drained and exhausted by excessive taxation. The right to possess private property is derived from nature, not from man; and the State has the right to control its use in the interests of the public good alone, but by no means to absorb it altogether. The State would therefore be unjust and cruel if under the name of taxation it were to deprive the private owner of more than is fair.
So, what is the most just way to tax? That is what we will address in the next posting on this subject.
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