chapter six: That Taxes Bearing on Capital Are Contrary to Individual Rights - Benjamin Constant, Principles of Politics Applicable to All Governments [1815]
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Principles of Politics Applicable to a all Governments, trans. Dennis O’Keeffe, ed. Etienne Hofmann, Introduction by Nicholas Capaldi (Indianapolis: Liberty Fund, 2003).
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chapter six
That Taxes Bearing on Capital Are Contrary to Individual Rights
Whatever the kinds of taxes a country adopts, they must bear on income and never encroach upon capital. This is to say that they must never confiscate more than part of annual production and never touch previously accumulated assets. These assets are the sole means of reinvestment, of feeding the workers, of generating abundance.
Though governments and many writers fail to recognize it, this proposition can be proved evidentially.
If taxes are trained on capital rather than on income alone, the result will be capital diminished each year by a sum equal to what the tax extracts. By this very fact annual reinvestment is diminished proportionately to the diminution of assets. This diminution [261] in reinvestment, diminishing incomes and the tax remaining the same, every year a larger sum of assets will be confiscated and therefore every year a smaller sum of incomes will be reinvested. This double progression is exponential.
Imagine a landowner who makes his property worthwhile. He needs three things: his land, his personal industry, and his capital. If he had no land, his capital and his industry would be pointless. Without his industry, his land and capital would be unproductive. If he had no capital, his industry would be pointless and his land sterile, since he would not be able to supply the funding indispensable to his production; he would not have the wherewithal for farming, fertilizing, sowing, or livestock. These are all the things which constitute his capital. Therefore whichever of these three things you attack, you impoverish the taxpayer equally. If, instead of taking away from him each year some of his capital, you take away some of his land, equivalent to some given sum, what will happen? In the next year, in taking away from him the same amount of land, you will deprive him of a relatively larger part of his property and so on and on, until he finds himself utterly dispossessed. The same happens when you tax his capital. The effect is less obvious but no less inevitable.
For any individual, whatever work he does, his capital is to him what a plough is to the farmer. Now, if you take from the farmer a sack of wheat he has just gathered, he goes back to work and produces another the following year. If you take his plough, however, he cannot produce more wheat.
Let it not be thought that the economizing of individuals can remedy this setback, creating capital stocks afresh. If you tax capital, you diminish individual incomes by taking away the means of replenishing these incomes. On just what are they then supposed to economize?
Let it not be said either that capital reproduces itself. Capital is only accumulated assets, gradually taken out of income. The more you encroach on capital, the more income declines, the less asset accumulation can happen, and the less capital can reproduce itself.
The State which taxes capital therefore prepares the ruin of individuals. It gradually takes away their property. Now, the security of that property being one of the State’s obligations, it is apparent [262] that individuals have the right to reassert that obligation against a system of taxation with results contrary to that end.
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