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

4.7.

Summary

To an extent, this chapter has involved tying up many “loose ends” in comparative tax analysis and in particular application to commodity taxation. The comparative framework, which has allowed us to examine the explicit Leviathan model of our own construction in juxtaposition with the implicit benevolent despot of the conventional tax theory, necessarily introduces considerable complexity into the analysis, perhaps more than seems warranted for any straightforward presentation of the basic points. Comparisons with tax orthodoxy aside, the analysis of commodity taxation under our Leviathan assumptions becomes an extension of essentially the same logical construction developed with reference to income taxation in Chapter 3. The normative argument for tax-base restriction or limitation and against tax-base comprehensiveness is identical in the two separate fiscal institutions. The implicit orthodox argument for idealized rate differentiation among income sources is less familiar than the similar argument for idealized rate differentiation among differing commodity bases, largely because equity issues are allowed to enter more directly into the income-tax analysis. Nonetheless, the dramatic change in normative results produced by a shift to a government model of Leviathan applies equally to the two cases. The requirement for uniform treatment among persons in the income tax as well as the requirement for uniform rates of commodity taxation become instruments for limiting governmental fiscal appetites, instruments that may become relatively “efficient” when examined from the individual taxpayer’s genuine constitutional perspective.

The comparative analysis of the chapter has its own by-product advantages. It enables us to show how the equi-revenue setting of orthodox tax theory can be transformed into a useful analytical device even in a Leviathan model of government. When two tax instruments, exploited to produce maximum revenues, provide government with equal revenue yields, the traditional excess burden norms come into their own. In this context, however, the analysis suggests that there is a direct relationship between maximum revenue and excess burden. Under standard assumptions of linearity, equal maximum revenue taxation will generate equal excess burdens. Allowing departures from this linearity assumption would, of course, modify this precise relationship. But such complexity would do nothing to undermine the basic thrust of our analysis here.

Like Chapter 3, the discussion of Chapter 4 may be interpreted as a series of exercises in applied price theory. As noted previously, the assignment of a power to levy tax on a commodity base is fully analogous to the award of a monopoly franchise in the sale of a good. Price theory proceeds from the analysis of simple monopoly to that monopoly which finds it possible and profitable to engage in varying degrees of price discrimination as among markets, persons, and over quantities. As this chapter’s discussion has indicated, essentially the same logical catalogue can be applied to the taxing power, with essentially the same results if properly interpreted.