Secrets of the Tax Revolt, by James Ring Adams, San Diego: Harcourt Brace Jovanovich, 346 pp., $16.95 paper
Is the U.S. Tax Revolt Ending?" So asked the Wall Street Journal in a recent headline following defeat of four antitax ballot initiatives (California, Michigan, Oregon, Nevada) in the 1984 elections. If history is any guide, the answer is almost certainly no. Tax revolts will continue so long as we live under political systems where politicians can gain power and rewards for raising, manipulating, and spending tax dollars that are extracted from citizens who would rather keep and spend the money themselves.
Such, at least, is the historical verdict announced in Secrets of the Tax Revolt, a work that stands in relation to its subject as Theodor Mommsen's histories to Rome or Francis Parkman's to the American West. In this work, James Ring Adams, a member of the Wall Street Journal's editorial board, examines the historical development of various theories of taxation, popular (and unpopular) reactions to their application, the recurring phases of fiscal crises, the anatomy of tax revolt, and most importantly, the economic and political lessons for our time.
Adams is a confirmed supply-sider, a believer in the idea that taxation diminishes things taxed. The concept permeates Adams's book. The book's major value, however, is not in any presentation of theory but in its careful examination of the economic results of tax raising and tax cutting in various states from early times to the present.
Adams defines three great waves in public response to taxation. In the first, concurrent with the movement for independence from Great Britain, the rallying cry was "No taxation without representation." That was fine as a slogan for severing the bonds of empire, but it wore thin when—especially as property qualifications for voting were removed—the representatives of the people began to increase taxes beyond what their constituents thought right.
To escape this taxpayer resistance without curtailing spending, politicians hit upon the idea of debt. Issuing state bonds permitted spending now, with the costs of retiring these debts spread across years into the future. Popular resistance to public debt sprees were notably associated with the Jacksonian era, which also featured strong opposition to the special privileges of banks and referendum approval for public debt issues. This was the second wave of public response to taxation.
The third wave of taxpayer revolts focused on constitutional limitations on the power to tax, requiring not only that taxation be proportional and uniform but also that it be limited in amount. This wave began in the South as a response to wild-spending Reconstruction governments, and it continues to the present day.
By careful historical and contemporary analysis of the tax experiences of eight key states, Adams illustrates sound policy and folly alike. His landscape is peopled with colorful figures on both sides of the fiscal divide.
Among the tax fighters are the frontier rebel Daniel Shays of Massachusetts, who was suppressed with armed force; the shrewd country doctor Michael Hoffman of Herkimer, New York, who dominated the New York "Peoples' Convention" of 1846; Gov. Oran Roberts, the "Old Alcalde" of 19th-century Texas; Lawrence A. Chehardy, the corpulent assessor of New Orleans who disapproved of taxing residences; Robert Tisch of Shiawassee County, Michigan, whose populist appeal produced a statewide uproar; and Howard Foley and K. Heinz Muehlmann, the high-tech growth twins who became effective advocates of supply-side policies in Massachusetts.
The most prominent names on the other side are contemporaries. Foremost among them, due to his insatiable passion for governmental spending, taxing, borrowing, and evasion of limitations, is the late Nelson Rockefeller of New York. Others who qualify for the taxpayers' curse include Mayor John V. Lindsay of New York City, Gov. Francis Sargent of Massachusetts, Gov. John Gilligan of Ohio, and the early Ronald Reagan, governor of California. Reagan qualifies for this Hall of Shame by the massive tax raising of his first term as governor, making use of a viciously progressive income-tax schedule. Happily, in the light of subsequent developments, Reagan by 1969 had accumulated a budget surplus that he rebated to the taxpayers and by 1973 was actively promoting a California constitutional amendment to limit taxes to 7 percent of total state personal income. This Reagan measure, Proposition 1, lost narrowly in a 1974 referendum but paved the way for the Jarvis-Gann Proposition 13 of 1978, the Hiroshima of the modern tax-limitation movement.
The Adams narrative, though, is not simply a journalist's history of taxers and tax fighters. He carefully examines the economic performance of states in the light of their tax policies, and his final nine-page chapter is a fountainhead of distilled wisdom. The secrets of the tax revolt can be summarized concisely. Economic growth requires falling tax burdens and rising technologies. Forget special tax breaks for business. Lower the personal tax burden. Assure the taxpayer—and particularly the entrepreneur—that the rate of change of the tax burden is downward and will not be reversed. Use tax dollars to produce a well-educated workforce and citizenry, so necessary to responsible growth.
Adams's case in support of these prescriptions is strong. States that followed this formula, such as modern New Hampshire and Massachusetts, are alive and well. States that rejected it in favor of ever more taxes and government intervention, like Ohio and Michigan, are in trouble. It would be worthwhile if the legislators of such troubled states studied these lessons carefully.
The flaws of this book are few and minor. In wading through the views of the ancients, from Arab historian Ibn Khaldun to Locke to Montesquieu to Adam Smith, it gets off to something of a slow start. Adams's only conspicuous failure of analysis is his too-superficial negative judgment of the Jacksonian free-banking era. As economic historians such as Hugh Rockoff and Lawrence H. White have shown, the defects of "free" banking were not a result of the inability of the free market to produce currencies of stable value. They stemmed from the insistence of state governments, notably in Michigan, that the private banks purchase large amounts of state debt and that their inflated currency issues be insulated from the discipline of prompt redemption across state lines. The free-banking era in New England, coordinated by the Suffolk Bank of Boston, without the foregoing defects, worked exceptionally well.
But this is a minor point. Throughout the work Adams constantly and effectively drives home a powerful economic message. Too much taxation, too much government, and too much public debt inevitably lead to the suppression of wealth creation, an exodus of would-be entrepreneurs, shrinkage of the tax base, and fiscal crisis. Absent external or fortuitous rescue, that crisis can be met by reversing the defective policies. It is a tragedy that this plain and simple lesson from 200 years of American history has to be learned over and over again.
John McClaughry spent a discouraging year as a senior policy advisor in the big-spending Reagan White House in 1981. He now heads the Institute for Liberty and Community in Concord, Vermont.