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

10.7.

Toward Authentic Tax Reform

Our basic purpose in this summary chapter is not to support or to reject any one or any set of the various proposals for constitutional reform that have been advanced to impose constraints on government’s fiscal power. Our whole analysis, however, may properly be interpreted as offering analytical argument in support of some appropriately designed set of limits. Our extreme Leviathan model of politics is not critical for this conclusion. This model, which we introduced to allow us to develop our analysis with some logical rigor, may be substantially modified in the direction of more “realistic” political assumptions without undermining the general conclusion in support of constitutional constraints.

To the extent that our analysis bears on “tax reform” at all, it does so with reference to “constitutional tax reform,” and, as noted, with particular reference to “tax limits.” We have little or no interest, here or elsewhere, in proffering our own private and personal advice to existing governments about taxes or indeed about anything else.

If we can succeed in shifting the grounds for debate in tax reform, we shall have opened the way toward the only authentic tax reform worthy of serious consideration.

Given this somewhat restrictive methodological stance, it would be inconsistent for us, at this stage, to lay down our own pet prejudices as to “ideal tax arrangements,” whether these be supported on efficiency, equity, or some other grounds. We hope to have been able to demonstrate that the individual, as potential taxpayer, placed in a hypothetical position where he is allowed to select among alternative sets of constraints on the taxing power of government, will rationally choose to exercise his option and impose some such constraints. In a broadly defined perspective, therefore, our whole analysis may be interpreted as providing positive argument in support of almost any one of the currently discussed proposals for constitutional fiscal limits. To go further than this, and to try to isolate supporting arguments for any one of the proposed set of prospects that have been suggested, would require more analysis than we have been able to muster. We do not want to make the mistake of suggesting that a unique constitutional solution will necessarily emerge even from the most idealized modeling of constitutional choice.

As we noted in the Preface as well as earlier in this chapter, this book is both badly and excellently timed. Perhaps a two- or three-year advance date in writing and in publication might have allowed some of our analysis to inform more fully some of the current discussions of constitutional change. But a ten-year advance would have surely meant a neglect of our whole argument. The “taxpayer revolution” of the 1970s has been politically exciting regardless of the final tally in terms of ultimate change in the political framework of society. And this political event has offered intellectual challenges that too few of our fellow economists and other scholars have chosen to accept. To the extent that our analysis in this book prompts others, regardless of ideological persuasion, to take up the gauntlet, tax-reform discussion will have moved beyond the realm of partisan advocacy toward authenticity in the desired debate over constitutional alternatives within which we should allow government’s fiscal powers to be exercised.