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WHY INCOME TAXATION? A MORAL AND HISTORICAL INQUIRY
Published online by Cambridge University Press: 14 August 2023
Abstract
The following essay analyzes the arguments made by the principal academic proponent of income taxation, Columbia University economist E. R. A Seligman, after it was found to be unconstitutional in 1894. Seligman thought that the prevalent theory of just taxation, that it should be based on a natural right to one’s person and property, was wrong. The principal American philosophical proponent of this natural rights-based approach to taxation was the late Brown University philosopher and economist, Francis Wayland. The essay analyzes the flaws in Seligman’s contention that there are no natural rights and, therefore, no natural property rights, so that taxation could not be justified by the benefits received for the protection of such rights. Instead, he claimed taxation should rest upon a person’s financial capacity. Since that capacity would be most accurately measured by net worth, we would have expected Seligman to endorse a proportionately assessed net worth tax (which was commonly used by the states in the nineteenth century). Alternatively, he argued for an income tax progressively assessed. This essay argues that since income is only a portion of financial capacity, his argument fails.
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- © 2023 Social Philosophy & Policy Foundation. Printed in the USA
Footnotes
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Social Philosophy and Policy Center, John Chambers College of Business and Economics, West Virginia University, jpaul@sppfbg.org. Competing Interests: The author declares none.
References
1 Examples of pre-modern income taxes include laws in France (1295 and 1356); England (1435); Florence, Italy (1447 and 1480); Holland (1748), and Saxony (1742). See E. R. A. Seligman, Progressive Taxation in Theory and Practice (Baltimore: Guggenheim, Weil and Co., 1894), 17-27. Still other examples were the income tax law passed in Massachusetts on November 4, 1646, the income tax provision in the Connecticut Code of Laws of 1650, and the income tax imposed in Georgia in 1773. (See Rabushka, Alvin, Taxation in Colonial America (Princeton, NJ: Princeton University Press, 2008), 170, 172, and 859Google Scholar.)
2 Pollock v. Farmers’ Loan and Trust Company 157, U.S. 429 (1895), affirmed on rehearing, 158 U.S. 601 (1895).
3 Transcript of the Minutes of the Board of Visitors of the University of Virginia, during the Rectorship of Thomas Jefferson, March 4, 1825, in The Writings of Thomas Jefferson, vol. 19, ed. Albert E. Bergh (Washington, DC: Thomas Jefferson Memorial Association, 1907), 460–61.
4 Wayland’s most significant works were The Elements of Moral Science, first published in 1835, and The Elements of Political Economy in 1837. Both went through several editions and were widely read. Indeed, according to Brown University, Wayland was “America’s premier moral philosopher” and “his textbook, The Elements of Moral Science, sold more than two-hundred thousand copies in the nineteenth century.” See “Slavery and Justice,” Report of the Brown University Steering Committee on Slavery and Justice, 2006.
5 Wayland, The Elements of Moral Science, (Boston: Gould and Lincoln, 1867 [1835]), 344–45.
6 Wayland, The Elements of Moral Science, 345.
7 Francis Wayland, The Elements of Political Economy (Boston: Gould, Kendall and Lincoln, 1850 [1837]), 395. Cf. John Locke, Two Treatises of Government, ed. Thomas Hollis (London: A. Millar et al., 1764 [1690]), Book II, Chapter XI §. 140: “It is true, governments cannot be supported without great charge, and it is fit everyone who enjoys his share of the protection, should pay out of his estate his proportion for the maintenance of it.”
8 Wayland, Elements of Political Economy, 395.
9 Wayland, Elements of Political Economy, 394.
10 Seligman, E. R. A., Essays in Taxation (Barcelona-Singapore: Athena University Press, 1915)Google Scholar, 68. Cf. Merriam, Charles Edward, A History of American Political Theories (New York: Macmillan, 1903), 310 Google Scholar: “[T]he idea that man possesses inherent and inalienable rights of a political or quasi-political character which are independent of the state, has been generally given up.” Merriam, a progressive, was founder of the University of Chicago’s political science department.
11 Seligman, Essays in Taxation, 68.
12 Seligman, Essays in Taxation, 71.
13 Seligman, Essays in Taxation, 71.
14 Seligman, Essays in Taxation, 69.
15 Seligman, Essays in Taxation, 69–70.
16 Seligman, Essays in Taxation, 72.
17 Seligman, Essays in Taxation, 27–30.
18 Brownlee, W. Elliot, Federal Taxation in America: A History, 3rd ed. (Cambridge: Cambridge University Press, 2016), 51 CrossRefGoogle Scholar.
19 Friedman, Nicole, Sanders, Laura, and Rubin, Richard, “Buffett Parries Trump by Releasing Some Tax Information,” Wall Street Journal, Oct. 11, 2016 Google Scholar.
20 E.R.A. Seligman, Progressive Taxation in Theory and Practice, originally published by American Economic Association, vol. 9, nos. 1 and 2 (Baltimore: Guggenheim, Weil, and Co., 1894), 190–200, 217. Seligman’s justification for progressive taxation is not stated as precisely as my summary. And he thought, as well, that except for inheritance taxes, progressive taxation at the federal level in the United States was not at the time (1894) possible.
21 Mehrotra, Ajay K., Making the Modern Fiscal State: Law, Politics, and the Rise of Progressive Taxation, 1877–1929 (New York: Cambridge University Press, 2014), 388 Google Scholar.
22 Piketty, Thomas, Capital in the Twenty-First Century (Cambridge, MA: The Belknap Press of Harvard University Press, 2014), 493–534 CrossRefGoogle ScholarPubMed.
23 Piketty, Capital, 525–26.
24 Piketty, Capital, 520–21.
25 Piketty, Capital, 522.
26 Charlie Gard was an infant in Great Britain whose parents wished to have him transferred from a British National Health Service Children’s Hospital to Columbia University Medical Center in the United States to be treated for a rare neuromuscular disorder. His parents had raised £1.3 million to pay for this but were prevented from doing so by the British government. As a result, the National Health Service withdrew his life support and he died. See Debra Goldschmidt and Hilary Clark, “Baby Charlie Gard Dies After Life Support Withdrawn,” CNN Health, July 29, 2017.
27 See, e.g., Bacchaus Barvard and David Jacques with Antonia Collyer, “Waiting Your Turn: Wait Times for Health Care in Canada,” Fraser Institute, December 10, 2019; “Canada Among Highest Health Care Spenders Yet Ranks Near Bottom on Number of Doctors, Hospital Beds and Wait Times,” Fraser Institute, November 8, 2018; “The Private Cost of Public Queues for Medical Care,” Fraser Research Bulletin, 2019 (Fraser Institute); Liana Brinded, “The First Step Toward Fixing the U.K.’s Health Care System is Admitting it is Broken,” Quartz, February 22, 2018; “Terminally Ill Boy Denied ‘Potentially Life-Saving’ Treatment by NHS Would Be Given It in Any U.S. Hospital,” The Telegraph, April 18, 2019; and Zhisui, Li, The Private Life of Chairman Mao (New York: Random House, 1994)Google Scholar—a portrait of public health care under Mao’s rule, written by his personal physician.
28 Seligman, The Income Tax, 633.
29 Seligman, The Income Tax, 634.
30 Internal Revenue Service Data for 2018 Data Book, 3.
31 In the words of multi-billionaire George Soros, “A charitable lead trust is a very interesting tax gimmick. The idea is that you commit your assets to a trust and you put a certain amount of money into charity every year. And then after you have given the money for however many years, the principal that remains can be left [to one’s heir] without estate or gift tax. So this was the way I set up the trust for my children.” ( Kaufman, Michael T., Soros: The Life and Times of a Messianic Billionaire (New York: Vintage Books, 2003), 170 Google Scholar.)
For a discussion of the GRAT, see Steve Hartnett, “Facebook Founders Provide an Excellent Estate Planning Example,” American Academy of Estate Planning Attorneys, May 16, 2012.
32 Revenue Statistics 2018: Tax Revenue Trends in the OECD, 7.
33 Quoted in Leff, Mark, The Limits of Symbolic Reform: The New Deal and Taxation, 1933–1939 (Cambridge: Cambridge University Press, 1984)Google Scholar, 112. Leff notes, paraphrasing La Follette, that this group of taxpayers pulled in “a whopping nine-tenths of the net income reported by taxyapers.”
34 Leff, Limits, 106.
35 Leff, Limits, 107.
36 Leff, Limits, 105.
37 Leff, Limits 106.