Bryan Caplan  

Taxing the Rich: Strange Hope for Liberty

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Scheve and Stasavage's Taxing the Rich: A History of Fiscal Fairness in the United States and Europe (Princeton University Press, 2016) is a shocking book.  Given the title, I absolutely did not expect it to bolster libertarian morale.  But Taxing the Rich offers libertarians more credible hope for the future than any openly libertarian book published in the 21st century. 

The heart of S&S's unintentionally delightful thesis:

1. Democracies have no inherent tendency to "soak the rich." 

2. Instead, democracies adopt high, progressive taxation in the face of compelling "compensatory" arguments for redistribution.

3. Only major wars of mass mobilization make compensatory arguments compelling.

4. Modern military technology has made majors wars of mass mobilization obsolete.

5. Therefore, tax the rich policies are a thing of the past, at least for developed countries.  They won't be coming back.

Highlights from the key chapter, entitled "The Conscription of Wealth":
The reason wartime governments increased taxes on the rich more than the rest was because war mobilization changed beliefs about tax fairness.  It created an opportunity for new and compelling compensatory arguments that increased support for taxing the rich.  Comparing public tax debates before, during, and immediately after World War I in the United Kingdom, France, Canada, and the United States, we demonstrate that as a result of the war both elites and ordinary people changed the type of fairness arguments they employed when justifying their preferred tax system.
The British case:
Calls for progressive taxation to equalize war sacrifices came in two forms.  The first was simply more progressive income taxation, the "conscription of income," while the second was a capital levy or literally the "conscription of wealth."  These demands came in part from the expected places, such as the Trades Union Congress, which held "that, as the manhood of the nation has been conscripted to resist foreign aggression... this Congress demands that such a proportion of the accumulated wealth of the country shall be immediately conscripted."  However, the arguments were also reflected in publications like the Economist, which had previously opposed high levels of income taxation.  The Economist opposed a capital levy, but it did support "direct taxation heavy enough to amount to rationing of citizens' incomes."  It also explicitly endorsed an article in the Economic Journal by Harvard economist Oliver Sprague entitled, "The Conscription of Income."  In the article Sprague argued: "Conscription of men should logically and equitably be accompanied by something in the nature of conscription of current income above that which is absolutely necessary."  The conscription of income was a clear compensatory policy.  The state was asking the young with lower incomes and less wealth to fight in the war.  Fairness demanded that this sacrifice be compensated with higher taxes on income and wealth.
To back up this claim, S&S catalog all the arguments about income taxation made in the UK Parliament before and during World War I.  Witness the transformation of rhetoric:
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Taxing the Rich then takes a necessary digression into military history, explaining the rise and fall of mass mobilization as a function of military technology.  Punchline:
The era of the mass army, one where countries have mobilized a substantial fraction of their citizens to fight, was dependent on a specific state of technological development.  As the precision of weapons delivered from the air has increased, it has become unnecessary, and perhaps undesirable, to mobilize a mass army for conflict... Given the nature of enemies that a country like the United States, or other large industrial powers, are likely to face going forward, it seems even more unlikely that mass mobilization will take place.  What does this imply about taxing the rich?  The twentieth-century conditions that created powerful compensatory arguments for taxing the rich are unlikely to be repeated anytime soon.  These conditions were far from accidental; they were driven by long-term trends involving international rivalries and military technology.
Of course, the fact that Scheve and Stasavage thrill me as a libertarian and a pacifist hardly shows they're right.  But they flesh out their big picture with a mass of compelling evidence.  Overall, an outstanding book. 




COMMENTS (14 to date)
Sam writes:

Interesting. Maybe a nearer-term prediction that follows from (your interpretation of) the thesis but could be borne out sooner than the end of progressive taxation is the following: we should expect the Republic party to either split into multiple factions, or realign away from hawkish foreign policy. Obviously there is already evidence for this in Rand Paul's and Donald Trump's presidential campaigns, as well as (since the early 1990s) the burgeoning Democratic presence in neoconservative circles (under the synonym "liberal interventionism" or "responsibility to protect").

But while I purchased the book and look forward to reading it, I must say I'm skeptical about such a grand prediction as "technology has made mass mobilization obsolete" for military conflict. Perhaps their evidence will convince me.

Anonymous writes:

Calls to mind this Paul Graham essay.

Effem writes:

When you include state, local, and sales taxes (why would we do only a partial taxation analysis?) the US tax system isn't very progressive at all. This is much ado about nothing.

The US is among the best countries in the world to get rich and be left alone. I work in finance...massive subsidies flow our way from the taxpayer and we don't have to pay them back on the back-end (taxation).

mico writes:

The claim that middle class or rich young British men suffered less from the WWI was, however, not true. A much greater proportion of these people died than working class young men, as they volunteered at a higher rate, were rejected on health grounds at a lower rate, and there was no buy-out from the draft.

If false compensation stories can be invented during wars they can be invented at other times. Policy shifts of any kind are generally more extreme in war time, but compensation stories are not exclusive to war time as such. In the US, race has become a standing peacetime compensation theme.

ThaomasH writes:

Sounds like the authors consider only progressive income taxation, not progressive consumption taxation.

Matt Skene writes:

I've never understood why libertarians get upset about taxing the rich. Libertarians should be upset at taxation because it's a violation of people's rights. But, if taxation is going to happen anyway, you should prefer that it occur in a way that minimizes rights violations and minimizes harms to those who are taxed. The richer you are, the less you are harmed by a tax. The higher the tax rate for the rich, the less need there is to violate the rights of others. Obviously you want to avoid harming the economy through creating disincentives, but I think that's overblown for rich people. Missing a larger portion of money you wouldn't notice is missing isn't really much of a disincentive.

If you can tax fewer people and cause less harm in the process, that's a good thing on libertarian grounds, so libertarians should want the rich to be taxed at a higher rate and a larger percentage of citizens to pay nothing. But instead, tax increases on the rich and the fact that the poor don't pay income tax are both seen as evils. Why is this?

robbbbbb writes:
As the precision of weapons delivered from the air has increased, it has become unnecessary, and perhaps undesirable, to mobilize a mass army for conflict...

You can bomb it, fry it, nuke it, spray chemicals on it and roll a tank over it, but you don't own it until a 19 year old with a rifle is standing on it.

Erik writes:

Two things strike me:

1. It sounds like a large part of this story is that during a major, idealistic war mobilization that media that are typically anti-tax are shamed into supporting additional taxation either intrinsically or for the sake of the optics of shared sacrifice. Once this pressure is off, they either immediately revert to or eventually re-evolve to their former stance, or others replace them.

2. Technological military forces are massively expensive, mostly due to having to be maintained and advanced at all times, as opposed to a conscription manpower-based force that can be drawn up and down as needed. Why progressive taxation not required to pay for this?

JK Brown writes:
You can bomb it, fry it, nuke it, spray chemicals on it and roll a tank over it, but you don't own it until a 19 year old with a rifle is standing on it.


True, but you don't need mass mobilization to occupy a place that where the enemy has been broken. Not to mention, Western armies no long "own it". We liberate it and then turn it over to those living there to administer with hopefully, usually in vain, a better government.

Thousands of men, facing off across miles of front lines for any significant length of time are unlikely ever to occur again. The Korean DMZ is a leftover from that past, but should North Korea attack, they will not be met with riflemen but with munitions launched from distant installations operated by a few highly skilled "soldiers".

Candide III writes:

I seem to recall another time about 100 years ago when informed people thought that modern military technology meant that protracted mass-mobilization wars (if they're not protracted there is no need to put the economy on a war footing, which is what really forces the tax issue) are a thing of the past. The Germans really thought that they would collect mobilized troops, quickly get them over the border according to Schlieffen Plan, march to Paris, stick the eagle flag in Frenchmen's behind and be back home in weeks, like they did in 1870. Mutatis mutandis, the French had the same idea. Turned out both were disastrously wrong, and so may we.

JK Brown: you are too optimistic. It takes twice as many people to keep a Predator drone in combat than a manned fighter-bomber.

Cliff writes:

I have a hard time seeing how the U.S. tax system as a whole is not very progressive. We have much more progressive federal income taxes than Europe, our sales taxes are much lower than their regressive VAT, income taxes make up a very modest portion of overall taxes and some states have no income tax, and our SS benefits are highly progressive and also the SS taxes are lower than pension taxes in Europe.

Sam writes:

JK wrote:

We liberate it and then turn it over to those living there to administer with hopefully, usually in vain, a better government.

Only when we don't actually care about winning that much.

Julien Couvreur writes:

Effem, you claim that the US taxes are less progressive than in other countries. Could you source that?

In particular, it doesn't match what I had read in [1] which is based on OECD numbers.

[1] https://www.washingtonpost.com/news/wonk/wp/2013/04/05/americas-taxes-are-the-most-progressive-in-the-world-its-government-is-among-the-least/

dbeach writes:

I don't understand this argument. In the past, high taxes on the rich have only been established during massive wars. We think there won't be any more massive wars. Therefore we won't have high taxes on the rich again? This does not follow. A different political justification for high taxes on the rich can surely be devised, and as income inequality and wealth concentration increase, likely will be.

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