For Good and Evil: The Impact of Taxes on the Course of Civilization, by Charles Adams, Lanham, Md.: Madison Books, 544 pages, S29.95
At a recent hearing before the Joint Economic Committee, Laura D'Andrea Tyson, head of President Clinton's Council of Economic Advisers, told a stunned panel of congressmen that the United States is "an undertaxed nation." When challenged to prove the point, Tyson noted that taxes represent a smaller share of output in the United States than in most other industrialized nations. If only the United States collected as much in taxes as Europe does, she maintained, the federal government "could raise an additional $400 to $500 billion in government revenue and miraculously cure our deficit." This is a sample of the fresh new thinking that Bill Clinton has brought to the White House.
But wait a minute. Wouldn't a $500-billion annual tax increase—the equivalent of a $4,500 additional levy per household—injure the economy and hinder American competitiveness? Not at all, according to Tyson. There is "no relationship" between a nation's tax burden and its rate of economic growth. And in any case, even with Clinton's world-record $300-billion tax increase, the United States will still be a less taxing nation than Sweden, Denmark, and France. Whew!
Given this thinking among the "putting people first" crowd in Bill Clinton's Washington, it's highly doubtful that Charles Adams's new book, For Good and Evil: The Impact of Taxes on the Course of Civilization, is selling many copies inside the Beltway. Adams's politically incorrect thesis is not only that taxes matter in terms of how nations prosper but that they matter a whole hell of a lot. "Taxes are the fuel that makes civilization run," writes Adams. "How we tax and spend determines to a large extent whether we are prosperous or poor, free or enslaved, and most importantly, good or evil."
For Good and Evil is a semi-scholarly history of taxation from the ancient Mayan civilization (which expired "when the citizens simply disappeared into the jungle instead of paying taxes") through the supply-side tax cuts of the Reagan administration. Make no mistake about it: This is no Tom Clancy spine-tingling page turner. Getting through this 530-page tract is a lot of hard work, but it's worth the effort.
Adams demonstrates in painstaking fashion how the rise and decline of the great ancient and contemporary empires—those of the Egyptians, the Greeks, the Romans, Russia's Peter the Great, and France's Napoleon—were tied directly to the level and types of taxation imposed. The book's first 300 pages can be summarized in six words: "Great empires tax themselves to death." A just tax system that has the consent of the governed is the basis for a growing economy and a stable political system. But "a government that taxes excessively is like a spouse who engages in adultery. Its destructiveness is usually not apparent until it is too late."
Adams's treatise is chock full of wonderful vignettes drawn from throughout history. For example, we learn about the origins of the word taxation—which actually means "forcible extraction." The Greeks defined tyranny as oppressive taxation. In ancient times, tax collectors, the equivalents of our own modern-day Internal Revenue Service, were regarded much the same as robbers and bandits. This is from an account of the 17th-century peasant tax rebellion in France:
"The peasants protested routinely with murder, mayhem, assaults, arson and other forms of violence. After a tax revolt in Bordeaux the finance minister confessed to the queen that it was safer for a French tax collector to walk through a Spanish village (France was at war with Spain) than to walk through the streets of this province….
"The peasants tore to pieces an unfortunate surgeon whom they suspected of being a gabeleur [tax collector]. After stripping him naked and cutting off one of his arms, they made him walk around the fair, and then finished him off. A teenage clerk who kept books for a tax collector was torn apart by these same peasants. His flesh was cut into strips and nailed on cottage doors to remind other revenue officials what was in store for them."
Now that's a tax revolt! Similar savage tales of tax rebellion were common in many other European countries throughout the Middle Ages and up through the 18th century. Might they not suggest new and more effective tactics for the resurgent tax revolt in the United States? It's just a thought.
Adams persuasively argues that the introduction of the income tax around the turn of the 20th century has become perhaps the greatest evil of modern-day tax systems. In Britain, John Stuart Mill was a persistent critic of the income tax. He called it "a mild form of robbery" that was "defensible on the same ground that the highwayman defends his acts." In the United States, where the first income tax was introduced with a top marginal rate of 7 percent, fiscal conservatives in Congress fiercely objected on the grounds that the tax would soon reach the unthinkable rate of 10 percent. How wrong they were. Within 10 years (during World War I), the highest marginal tax rate reached 70 percent.
Throughout the 20th century the income tax juggernaut has been an instrument of political mischief in ways that most Americans probably would never suspect. Here is one intriguing scenario Adams draws:
"The Viet Nam disaster might have been avoided if it had not been for the American tax system which put enormous revenues in the hands of the U.S. presidency. It was easy for Mr. Johnson to hoodwink Congress…. If President Johnson had had to ask Congress to double everyone's taxes to finance the war, Congressmen would have had to explain that to their constituents. It is quite probable that if the Viet Nam war had been financed with new taxes which doubled everyone's tax burden, Congress would have questioned the need for combat forces that cost millions of dollars per minute in a remote jungle on the other side of the earth."
The history of taxation is a history of the law of unintended consequences. One of these is that high tax rates yield declining revenues because of tax avoidance, flight, and economic decline. Countless great empires learned this lesson centuries before the birth of Art Laffer. What is frustrating is that the lesson has had to be repeatedly relearned and still needs to be relearned (witness the Clinton administration). From the early 1900s through 1980, tax rates continually spiraled upward. The United States, Britain, and other nations adopted top income-tax rates of 90 percent and more. Economic growth rates slowed to a crawl while tax havens like the Grand Cayman Islands and Hong Kong flourished. During the last years of Soviet communism, the Gorbachev government lowered the top income-tax rate to 55 percent, a rate lower than now exists in much of the "free" world and lower than the top rate that prevailed in the United States from Franklin Roosevelt through Jimmy Carter.
Soak-the-rich schemes inevitably mean fewer rich to tax. In 1971 the Rolling Stones fled the United Kingdom and its oppressively high tax rates. As Mick Jagger explained: "We were forced to make a decision courtesy of the British government—live in England and not be able to afford another set of guitar strings, or move and keep the band together. Hence, 'Exile on Main Street.'" Jagger, it turns out, was a supply-sider long before Margaret Thatcher.
Conventional opinion says tax dodgers are the enemy of the state because they raise the burden on honest taxpayers. But Adams thinks tax avoidance plays a useful social function in high-tax nations: It serves as a "safety valve against violence and rebellion." He writes: "If my neighbor operates off-the-books and pays no tax, my tax rates do not increase. The less tax paid, the less government has to spend—and most people think government has too much to spend anyways."
The most insidious evil that Adams identifies as arising from modern-day tax policies and modern-day tax levels (the real per-family tax burden in the United States rose from $6,000 in 1950 to $16,500 in 1992) has been the gradual yielding of liberty and privacy rights. "From the earliest records of civilization, tax laws have taken away liberty more often than foreign invaders," Adams charges—an extraordinary statement that he substantiates persuasively.
Or as Mencken put it in a 1926 newspaper column 10 years after the introduction of the income tax, "Holes began to be punched in the Bill of Rights, and new laws of strange and often fantastic shape began to slip through." Mencken had not even witnessed the half of it. Today, our tax collectors act as a contemporary Spanish Inquisition. The IRS is an agency that can, without due process of law, seize the finances and property of suspected tax frauds. In the tax courts, there is a virtual presumption of guilt.
To prevent abuses of power by the IRS, Adams offers a series of policy reforms that are worth thinking about. For example, he proposes establishing a crime for tax extortion to prevent the harassment of citizens by overzealous IRS agents (whom Adams calls the "fiscal police"). He tells the story of an IRS auditor who arbitrarily slapped a taxpayer with a $35,000 civil fine as punishment for asking for a brief postponement of a scheduled meeting. Adams also suggests establishing federal tax districts that correspond with congressional districts to achieve some degree of political accountability within the IRS.
The most compelling reform suggestion in For Good and Evil is to decriminalize the tax code. Tax fraud should be a crime, but tax avoidance should not. As Adam Smith reminds us, the tax avoider is "in every respect an excellent citizen had not the laws made a crime of what nature never meant to be." Given the vague nature of the current tax code, its criminal provisions could technically be used to imprison virtually every taxpayer who signs a return. The fear and intimidation caused by the threat of criminal penalties allows the IRS to use tactics that border on extortion.
After praising the supply-side tax revolution that Ronald Reagan exported around the world in the 1980s, Adams ends his book with this prescient question: "As the 1990s unfold, will the tax reductions of the 1980s hold, or will these reforms be a short moment of smartness in a harsh century of dumb taxation?" If Laura D'Andrea Tyson's arrival in Washington is any indication, it will be the latter.
Stephen Moore is an economist working for the minority members of the Joint Economic Committee of Congress.
This article originally appeared in print under the headline "The Burden of History".