The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword
• Geoffrey Brennan
• Preface
• Acknowledgments
• The Power to Tax
• 1.: Taxation In Constitutional Perspective
• 1.1.: The Notion of a “constitution”
• 1.2.: The Logic of a Constitution
• 1.3.: The Means of Constitutional Constraint
• 1.4.: The Wicksellian Ideal and Majoritarian Reality
• 1.5.: The Power to Tax
• 1.6.: The Enforceability of Constitutional Contract
• 1.7.: Normative Implications
• 2.: Natural Government a Model of Leviathan
• 2.1.: Leviathan As Actuality and As Contingency
• 2.2.: Monopoly Government and Popular Sovereignty
• 2.3.: The Model of “leviathan”: Revenue Maximization
• 2.4.: The Model of Leviathan As Monolith
• 2.5.: The Constitutional Criteria
• 3.: Constraints On Base and Rate Structure *
• 3.1.: Government As Revenue Maximizer Subject to Constitutional Tax Constraints
• 3.2.: Tax-base and Tax-rate Constraints In a Simple Model
• 3.3.: One Among Many
• 3.4.: Tax Limits and Tax Reform
• Appendix: Progression In the Multiperson Setting
• 4.: The Taxation of Commodities
• 4.1.: The Conventional Wisdom
• 4.2.: Constitutional Tax Choice
• 4.3.: Alternative Forms of Commodity Tax: the Choice of Base
• 4.4.: Uniformity of Rates Over Commodities
• 4.5.: Uniformity of Rates Over Individuals
• 4.6.: Discrimination By Means of the Rate Structure
• 4.7.: Summary
• Appendix
• 5.: Taxation Through Time Income Taxes, Capital Taxes, and Public Debt
• 5.1.: Income Taxes, Capital Taxes, and Public Debt In Orthodox Public Finance
• 5.2.: The Timing of Rate Announcement
• 5.3.: Income and Capital Taxes Under Perpetual Leviathan
• 5.4: Leviathan’s Time Preference
• 5.5.: The Time Preference of the Taxpayer-citizen With Respect to Public Spending
• 5.6.: The Power to Borrow
• 5.7.: Conclusions
• 6.: Money Creation and Taxation
• 6.1.: The Power to Create Money
• 6.2.: Inflation and the Taxation of Money Balances: a “land” Analogy
• 6.3.: Inflation and the Taxation of Money Balances
• 6.4.: Inflationary Expectations Under Leviathan
• 6.5.: Inflation, Wealth Taxation, and the Durability of Money
• 6.6.: The Orthodox Discussion of Inflation As a Tax
• 6.7.: The Monetary Constitution
• 6.8.: Inflation and Income Tax Revenue
• 6.9.: Monetary Rules and Tax Rules
• 7.: The Disposition of Public Revenues *
• 7.1.: The Model
• 7.2.: Public-goods Supply Under a Pure Surplus Maximizer: Geometric Analysis
• 7.3.: The Surplus Maximizer: Algebraic Treatment
• 7.4.: The Nonsurplus Maximizer
• 7.5.: Toward a Tax Policy
• 8.: The Domain of Politics
• 8.1.: Procedural Constraints On Political Decision Making
• 8.2.: The Rule of Law: General Rules
• 8.3.: The Domain of Public Expenditures
• 8.4.: Government By Coercion
• 9.: Open Economy, Federalism, and Taxing Authority
• 9.1.: Toward a Tax Constitution For Leviathan In an Open Economy With Trade But Without Migration
• 9.2.: Tax Rules In an Open Economy With Trade and Migration
• 9.3.: Federalism As a Component of a Fiscal Constitution
• 9.4.: An Alternative Theory of Government Grants
• 9.5.: A Tax Constitution For a Federal State
• 9.6.: Conclusions
• 10.: Toward Authentic Tax Reform Prospects and Prescriptions
• 10.1.: Taxation In Constitutional Perspective
• 10.2.: Tax Reform As Tax Limits
• 10.3.: Tax-rate Limits: the Logic of Proposition 13
• 10.4.: Tax-base Constraints
• 10.5.: Aggregate Revenue and Outlay Limits: Ratio-type Proposals For Constitutional Constraint
• 10.6.: Procedural Limits: Qualified Majorities and Budget Balance
• 10.7.: Toward Authentic Tax Reform
• Epilogue

2.4.

The Model of Leviathan as Monolith

In incorporating revenue maximization as the central feature or characteristic of government behavior, we are, as previously noted, making a heroic leap from individual utility maximization to the presumption of a single maximand for “government” which is in almost all circumstances best modeled as a collectivity. Even in nondemocratic states, it is rare that “government” can descriptively be modeled as a single unit, analogous to a single person. If we allow for the interaction of many, several, or even a few separate utility-maximizing individuals within the set of those who effectively make governmental decisions, we are thrown directly into the complexities of public-choice-social-choice theory. “Government,” as such, cannot exist, and “governmental outcomes” may exhibit relatively little internal consistency or stability.

We do not, of course, deny the relevance and the importance of the various attempts to look at the political process from within the public-choice-social-choice framework or paradigm. (This statement should be obvious to those familiar with some of our own previous efforts.) But we have chosen, quite deliberately here, to cut through some of these complexities of interpersonal interactions that take place within the set of governmental decision makers and to impose the “as if” model of “government as an entity.” In so doing, we are not implying that “government” is something that does, in fact, exist separate and apart from and somehow independent of those persons who act on its behalf, who are individually responsible for the particular results to be observed. These persons are presumed to be maximizing their own utilities, and we are not claiming that each politician-bureaucrat or even any politician-bureaucrat accepts revenue maximization as an explicit objective. Quite the contrary. It seems unlikely that any governmental decision maker will embody such an explicit revenue objective in his utility function, at least directly. Our logical construction is not inconsistent with the utility-maximizing models of the politicians and bureaucrats that are to be found in the modern public-choice literature. The decision makers, individually, in our model do not try to further “Leviathan’s interest” directly, any more than they try to further the more familiar “public interest.”

The analogy with the interaction of separate buyers and sellers in the competitive market may be helpful. Since Adam Smith, we have known that something that might be called the general “public interest” is promoted by the operation of competitive markets, even though no single participant need explicitly try to promote such an objective. Our model of governmental operation is based on the presumption that something close to “Leviathan’s interest,” revenue maximization, emerges from the interaction of the whole set of governmental decision makers even if no person explicitly sets maximum revenue as the goal of his own action.

We construct our model of the revenue-maximizing Leviathan in an attempt to bring the observed results of modern governmental decision structures into an analytical pattern that will allow us to initiate reasonable discussion of constitutional alternatives. As we have previously noted, analyses of the complexity of the interactions among individuals in producing collective outcomes may lead to the normative evaluation of constitutional alternatives described in terms of voting rules, procedures, and processes. And it is surely within the realm of the possible that some subset of such alternatives may produce predicted fiscal results such as to make any model of the revenue-maximizing Leviathan wholly inappropriate. But we do not propose to discuss these aspects of the more inclusive constitutional challenges confronted in modern societies. We present our model of the revenue-maximizing Leviathan as a reasonable setting within which the alternative elements of a tax constitution might be discussed: nothing more, nothing less.

There are two steps involved in a shift from the benevolent despotism model of politics to that of revenue-maximizing Leviathan, and many critics may be prepared to go halfway but no further. These critics recognize that persons who act in public-choice roles can best be analyzed as utility maximizers, but they may object to the methodological “leap to Leviathan.” These critics may propose that “government” behavior can best be modeled as some sort of “unconstrained random walk” over the potential policy space, without a meaningful maximand, even for “as if” analysis. We should acknowledge the inherent plausibility of such a model of political process, and we can appreciate the challenge of trying to derive the foundations of an appropriate fiscal constitution in such a setting. In many respects, such a constitution would probably be quite similar to that which might emerge under Leviathan assumptions; in other respects, differences might appear. The point of emphasis, however, is that the desirability of constitutional limits is in no way reduced by a switch to such a model of politics. In at least partial defense of the Leviathan model by comparison with a “random walk” model, we might point to the empirical record of governmental growth, in both a relative and an absolute sense.