All Commentary
Tuesday, September 1, 1981


The idea of social justice implied in the ability-to-pay principle is that of perfect financial equality of all citizens. The only logical stopping place of the ability-to-pay doctrine is at the complete equalization of incomes and wealth by confiscation of all incomes and fortunes above the lowest amount in the hands of anyone.

Continuous change and the inequality of wealth and income are essential and necessary features of the market economy. In the frame of such a system no tax can be neutral. The very idea of a neutral tax is as unrealizable as that of neutral money.

Discriminating taxes levied upon corporations would, if raised above a certain limit, result in the total disappearance of corporations and big business. Capital levies, inheritance and estate taxes, and income taxes are similarly self-defeating if carried to extremes.

If taxes grow beyond a moderate limit, they cease to be taxes and turn into devices for the destruction of the market economy. The more taxes increase, the more they undermine the market economy and concomitantly the system of taxation itself. Every specific tax, as well as the nation’s whole tax system, becomes self-defeating above a certain height of rates.

Taxes are necessary. But the system of discriminatory taxation universally accepted under the misleading name of progressive taxation of income and inheritance is not a mode of taxation. It is rather a mode of disguised expropriation of the successful capitalists and entrepreneurs. It can best be considered a means of bringing about socialism.

Henceforth, governments will have to realize that one dollar cannot be spent twice, and that the various items of government expenditure are in conflict with one another. Every penny of additional government spending will have to be collected from precisely those people who hitherto have been intent upon shifting the main burden to other groups. Those anxious to get subsidies will themselves have to foot the bill.

  • Ludwig von Mises (1881-1973) taught in Vienna and New York and served as a close adviser to the Foundation for Economic Education. He is considered the leading theorist of the Austrian School of the 20th century.