Taxation through the ages

May 3, 2011

Brandon Dutcher talks taxes with OCPA distinguished fellow J. Rufus Fears

Dutcher: You have pointed out many times that the United States enjoys a level and a blend of freedom that is unique in history. If one reflects upon the freedoms we enjoy, I think any response other than gratitude would be unbecoming. Nevertheless, at the risk of sounding ungrateful, I do think it’s important that we discuss our tax burden. Last year Tax Freedom Day arrived in Oklahoma on April 6—that is to say, the average Oklahoman had to work 96 days to earn enough money to pay the federal, state, and local tax collectors. That’s more than 25 percent of his or her income. [In 2011, it was April 2.]

In a recent lecture you pointed out that the first true work of history was not Herodotus but rather Samuel. So I’m reminded that when Israel asked Samuel to give them a king like all the other nations had, Samuel said, in effect, you better be careful what you’re asking for. If you have a king he’ll conscript your sons and so forth, and worse yet he could give you a tax burden that—brace yourself—could go as high as 10 percent. I’m sitting here thinking 10 percent would look pretty good right about now.

Dr. Fears: Yes, we have achieved in this country a unique balance of individual freedom, political freedom, and national freedom. And we have to pay for that in taxes. However, Samuel is not the first to talk about taxes. In point of fact, the very birth of civilization in Egypt and in Mesopotamia—and that’s where civilized life first began around 3000 B.C.—led to taxes, and it led to the invention of writing. Almost simultaneously, in what we call Iraq today, and in Egypt around 3000 B.C., writing just appeared. And it’s almost as though the king of Uruk, or Ur of the Chaldeans as we read about in Genesis, or the Pharaoh of Egypt, the first king Pharaoh Menes, said to his staff: I’ve got to have a way of keeping up with the taxes people are paying, and I’ve got to have a permanent record, and I want it on my desk by close of business on Friday. And they sat down and came up with it. And that is the first preserved writing we have from Egypt: taxation records—who owes what and whether they have paid it.

In the cities of Iraq in the Tigris and Euphrates river valley, the priests served as tax collectors for the king and, theoretically, for the god. You paid your taxes, and 10 percent is about what you paid. So 10 percent was a standard amount of taxes to pay in Egypt and in the early Middle East. It is interesting that as the book of Genesis goes along Pharaoh comes to a better understanding of how much taxes he can get. He has an enormously capable grand vizier, or second-in-command, Joseph. He realizes he can raise taxes. And in a time of famine, when the people of Egypt have almost nothing, the first statement of course of a benevolent government is that it will give the people grain to eat but they do have to pay for it. And when all their money is gone the next year, they have to give their flocks, sheep, and cows. And when there is nothing left, well, you have to give me all your land and I’m going to keep from that each year 20 percent.

So the 10 percent might have looked pretty good to the Israelites as compared to the 20 percent, but the 20 percent would look good to us. And that 20 percent, in the words of Genesis, made the Egyptians slaves of their Pharaoh because they had to work so long each day just to pay their taxes.

Dutcher: And they weren’t merely slaves to a king, but to a king who was thought to be a deity, a god-man. So they pay 20 percent to a deity and they are slaves, yet we pay 25 percent to mortals and we consider ourselves free. Does that strike you as ironic?

Dr. Fears: Well it does, and it’s also that they had a certain accountability. That is to say, if the rains didn’t come or if the Nile didn’t rise, then they would riot against Pharaoh because it was his job to make the land fertile. We don’t have the accountability from government for our taxes today.

And as we go on through the history of the world, we find the first democracy in history, ancient Athens. Like us, Athens achieved a blend of national freedom (freedom from foreign rule), political freedom (freedom to vote, freedom to hold office), and individual freedom (freedom to live as you choose as long as you harm no one else). And in fact that was the definition of the democracy to the Athenians—their freedom to live as they chose as long as they harmed no one else.

However, Aristotle defined that democracy as a systematic plan to redistribute the wealth. And for Aristotle that was the difference between a good constitutional free government and a radical democracy. The good constitutional government apportions taxes equally. The radical democracy wanted it redistributed by a graduated income tax, and particularly by what we might compare to a high marginal income tax, the way we used to have in this country. Wealthy people in this country at one point would pay 91 percent marginal taxes. In ancient Athens they would have to build a battleship, and that would be about a million dollars in today’s currency. And not only did they have to pay for its being built, they also had to serve on it to make sure they didn’t cut corners.

The other heavy tax that was put only on the wealthy was called a liturgy for the dramatic performances. And there wealthy people did not mind because they got great recognition for putting on these plays by Sophocles. But nonetheless, it was a heavy economic burden placed upon the wealthy.

The Romans had a typically practical attitude towards taxes. When they became the world superpower by the year 167 B.C., Roman citizens simply stopped paying taxes. They said, there is no way we are going to protect the world and also pay taxes. So they had no taxes well into the time of the first Caesars. And that was when one of the great hallmarks of being a Roman citizen, say in the age of Paul, was that you didn’t have to pay taxes. The majority of the inhabitants were not citizens—that’s why Paul was so proud of his status as a citizen. However, they worked two days a year to pay their taxes. And for that, they got the most cost-efficient and best army the world had ever seen, peace and prosperity that in many parts of the Middle East has still not been equaled, a superb network of roads, a free-market economy, and social mobility. Two days a year. Now let’s compare that to the 96 days you told me about.

Dutcher: Let’s jump forward to the American colonists in, say, 1775. They were possibly the freest, most lightly taxed people in the world. And yet they took up arms in a tax revolt.

Dr. Fears: Yes, the American Revolution, from the point of view of King George, was about taxes. As he said to Parliament, the issue is the Americans won’t pay taxes. And Edmund Burke, the famous orator and lover of freedom, stood up and said, that is indeed the issue. Touch an Englishman in a hundred places about his freedom and he will not squawk. Touch him in his pocketbook with unfair taxes, and he will revolt. And when he ceases to be so sensitive about his taxes, he will cease to be worthy of his freedom. That is what got King Charles in so much trouble with Parliament, the question of taxes and his refusal to be accountable for the taxes he raised.

Thus it was that this idea came across with our colonists, and when the troubles began after 1763 at the end of the French and Indian War, the British government had a legitimate issue. That is to say, it had fought to defend the colonies (though the colonies had provided large numbers of troops) and it had incurred a huge debt. And it wanted the colonies to pay that debt. And part of the issue was that the colonists felt that they were not represented in Parliament and hence there was no accountability, but also they did not want to pay taxes. And yes, they thought 10 percent was far too high. So our Revolution came over the issue of Americans being unwilling to pay taxes to an unresponsive government which did not want to give them a say in how the money was spent. And there we have a real parallel with today.

But after we won our independence we realized you do have to pay some taxes to protect yourself, and our Constitution came into effect in considerable part in order to protect our political freedom but also to ensure a stable economy. Congress is given a broad power to tax under that Constitution. In his farewell address, George Washington told his fellow citizens that there was no form of taxation that would not be inconvenient. We had to pay taxes. We pay taxes in wartime to defend ourselves, and in peacetime we pay taxes to pay off that debt. Now there again, we have wandered far from the wisdom of the founders to run up huge debts even in peacetime. And Washington and his advisor Alexander Hamilton would have told you that regardless of changes in technology and the economy, a nation cannot be a pauper over the long term. It must have a sound and stable currency resting upon gold and silver and it must not be a debtor nation for a long period of time.

Dutcher: What has changed? It’s as if we don’t even speak the same language as our forebears. That such lightly taxed people would take up arms seems bizarre and almost incomprehensible to us today.

Dr. Fears: Well, when I teach my classes, they find it very hard to relate to the founders of our country. Not just to men like George Washington, but also to the average American who would take up a musket and go out to fight his fellow countrymen, British soldiers, over the question of taxation. But to them, the ability of a government to tax was its ability to control your property, and your property was a sacred right. Life, liberty, and the pursuit of happiness, but a crucial part of that happiness, as Thomas Jefferson himself said, is your right to keep and use as you wish the fruits of your own labor. We have lost that sense of property. We do not value property rights the way the founders of our country did.

Even Cicero, in the first century B.C., said that a respect for property rights is the true foundation of freedom. Now in the Constitution the founders wrote a section on taxation in such a way that an income tax was impossible. They thought that an income tax was a restriction upon your freedom. They also believed that tapping your income at its source for taxes was most onerous. It was known in places like the Russian Empire, where the czar took his 20 percent before the peasant got anything. But to the founders this was the denial of freedom. Our first real income tax came during the Civil War. We’ve talked about this before, but I believe that Abraham Lincoln was one of our greatest presidents. But he was also a founder of the Progressive movement. His idea was that the community should do for the individual what the individual cannot do (or do as well) for himself. Part of this was taxes, so an income tax was introduced during the Civil War. It was then later ruled by the Supreme Court to be unconstitutional. And so it was that one of the key features of the Progressive movement of Theodore Roosevelt or of Woodrow Wilson was an income tax. The constitutional amendment was ratified in 1913, and its rate has steadily increased since.

But we the people—and that’s how our Constitution begins—we have the power to reverse this trend in taxation. All we need to do is elect representatives and senators who will cut back government spending on a massive scale—and it can be done—and then accordingly reduce taxes. We have allowed our government to tax us so heavily. We are still free individuals, but we don’t want to exercise that responsibility because everyone has a worry that, “yes, but this entitlement I’m getting might be cut back, or that entitlement might be cut back,” and so we the people tax ourselves.

Dutcher: It’s as if we’re looking to a deified government to give us our daily bread, just as the ancients looked to their god-man.

Dr. Fears: That’s how Pharaoh became a god, and that’s how the kings of cities like Uruk and Ur came to be seen as the chosen of god on earth: They provided security. They were able to organize the labor forces that could irrigate the land in order to ensure that the crops grew. They could ensure that the people of Egypt or the people of the city of Ur were protected from aggressive enemies. And all through history, again and again, people have chosen the perceived security of a despot over the awesome responsibility of self-government. The men and women who would not pay these taxes to the King of England did not expect the King of England to give them free medical care. They did not expect the King of England to give them free schools. They did not expect the King of England even to give them decent roads. If they wanted a decent road, a contractor would go out and build it, put a pike in front of it, and they would have a turnpike where they paid the toll. They did not expect the King of England to give them retirement benefits or, if they were unable to find a job or lost their farm, to step in and pay for it. So they had the self-responsibility which we do not want.

Dr. J. Rufus Fears, a classics professor at the University of Oklahoma, serves as the Dr. David and Ann Brown Distinguished Fellow for Freedom Enhancement at OCPA. Brandon Dutcher is OCPA’s vice president for policy.