Adam Smith vs. George Bush on Taxes
“It’s your money” has been a rallying cry of many political leaders, including President Bush, to justify large tax cuts. Taxes, say Bush and many libertarians, should always be regarded with suspicion--they take people’s hard-earned private property away--and should be kept as low as possible.
Although people who hold views like this often appeal to Adam Smith as a patron saint of private property and the free market, Smith himself did not share their view of taxation. It is instructive to see why.
The alternative to the “it’s your money” view begins by pointing out that the money I pay in taxes is not really just “my” money. When I take a job or start a business, I will make money only if I get significant help from my society and my government. My efforts will fail if I am not protected against theft and attack, if there are no decent roads to and from my firm, if environmental blight or urban decay keeps people away from my retail outlet or if the general population is so poorly educated, ill or despairing that my firm can find no customers or good workers. In this sense, my earnings are not purely “my” money. They are the product, rather, of a collaborative effort between me and my neighbors and political officials. And I owe some of the earnings back to the society and government agencies that have helped me.
It is this view, not Bush’s view, that Smith endorsed. He wrote, in his “Wealth of Nations”: “The subjects of every state ought to contribute toward the support of the government in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the state.” Society creates the conditions under which financial success is possible, Smith believed, and has therefore a rightful claim to a share of that success.
Smith thought, more generally, that it was foolish to talk as if there were something suspicious about the fact that governments tax us. Taxation comes with government. All governments must impose taxes on their subjects, and since governments perform important services for all of us, we should be just as willing to pay taxes as we are to pay for any other service. In fact, Smith says, people are willing, even proud, to pay taxes: “Every tax is to the person who pays it a badge, not of slavery, but of liberty. It denotes that he is subject to government, indeed, but that, as he has some property, he cannot himself be the property of a master.” Governments expand everyone’s liberty, and the fact that we pay taxes to support the government is but a sign and a consequence of our freedom.
Finally, one part of protecting liberty involves making sure that there is as little poverty as possible. Great poverty breeds crime, which interferes with everyone’s liberty and of course prevents the poor themselves from having the mental or material resources to act with full freedom. Protecting freedom directly requires an investment at least in public education and public health, especially for pregnant mothers and young children. Smith supported using tax money for these kinds of measures. Indeed, he gives express approval to progressive taxation, recommending a higher road toll for luxury carriages than for freight vehicles so that “the indolence and vanity of the rich” can be made to contribute to “the relief of the poor.”
Adam Smith has been misread for generations, and it is not news to scholars that he was a strong advocate for the poor. But it is disturbing that the silly notion that taxes are some sort of infringement on private property should be widespread two centuries after Smith died. It is yet more disturbing that a person who is now president should have based his campaign on this silly notion.