In the first century A.D., the Roman Emperor Nero rubbed his hands together as he proclaimed, “Let us tax and tax again. Let us tax until no one owns anything.”
Nero obviously loved high tax rates. In that passion, he enjoys lots of historical company. Fortunately, not every politician like him goes unpunished. Sometimes the people let them know they have had enough. Many centuries after Nero, the finance minister to France’s Louis XIV, Jean-Baptiste Colbert, knew that governments must tread carefully with their impositions. He famously said, “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing.”
Opposition to oppressive or unfair taxation has sparked strife in every corner of the world, and still does today. People do not like to be plucked too much. And why should they think otherwise? It’s their money! The less of it they possess, the harder it is for them to pay their bills, grow their businesses, or live their dreams.
Here are six observations derived from both the history and economics of taxes.
1. Taxation is as old as government itself
In fact, it is one of the things that distinguishes government from everything else. Government (and those it authorizes or empowers) is the only entity that can legally seize your money. You can say “No, thanks” to anybody else who wants to do something with your money, but you can’t say that to the government without fear for your freedom or your property. That should put a special burden of responsibility on the government to spend your money wisely, but the incentive for it to waste it or feather its own nest is usually stronger because its “customers” have no choice but to pay no matter what.
2. Taxation takes many forms
The most obvious ones are direct taxes on income, sales, products, services, and property. But we are taxed in other, less obvious ways too. Through its regulations (both good and bad ones), government forces up the cost of doing business. Who pays that? Sometimes consumers do. Other times, shareholders pick up the tab. Workers pay the price too, through smaller wage increases or even by losing their jobs (which in effect is a 100 percent tax).
3. Taxation affects behavior
Human beings are creatures of incentives and disincentives. Generally, if you encourage something, people will do more of it; if you discourage something, people will do less of it. People who advocate higher taxes on cigarettes usually do so because they want less smoking but they often fail to make the connection between higher taxes on work and less work; or higher taxes on investment and less investment; or higher taxes on businesses and fewer businesses.
4. Taxation is related directly to government spending
The more government spends, the more it must tax—now or later, one way or the other. It is important to remember that government has nothing to give anybody except what it first takes from somebody. If government is big enough to give you everything you want, it is also big enough to take away everything you have.
5. Taxation hinders economic growth
If the tax burden is small and revenues are spent efficiently for things that benefit everybody (such as protection against theft and violence), an economy can grow. Winston Churchill put it well when he said, “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
6. Taxation affects everybody, not just those who are directly taxed
Some people favor more taxes on other people because they mistakenly believe they themselves will be unaffected. That’s rarely the case. If another person’s income or wealth is taxed more heavily, that person will likely buy fewer products and services; or make fewer investments that could grow a business; or take fewer risks as a wealth-creating entrepreneur.
Taxes are serious business. Raising or lowering them will have major implications on behavior and economic activity. But most importantly for all of us who value liberty, ever higher taxes mean that we as a people are less and less free to enjoy the fruits of our labors. That’s a fact that is as true in America as it is anywhere else.
(The Portuguese version of this article was published on October 5 on Portal Reforma Tributária, a project of the Brazilian organization, Observatorio do Empreendedor, based in Florianopolis.)