Adam Smith believed in progressive taxation

[AJH032]

I came across this, I thought it was really interesting. Adam Smith, the one who is idolized by conservative economists, and one of the first to explain and advocate free market capitalism, actually was against a flat tax. So next time your Republican/Libertarian friend advocates the flat tax, just remind them of what Adam Smith said:

"the expense of defending the society, and that of supporting the dignity of the chief magistrate, are both laid out for the general benefit of the whole society. It is reasonable, therefore, that they should be defrayed by the general contribution of the whole society, all the different members contributing, as nearly as possible, in proportion to their respective abilities."

"When the toll upon carriages of luxury, upon coaches, post-chaises, &c. is made somewhat higher in proportion to their weight, than upon carriages of necessary use, such as carts, waggons, &c. the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor, by rendering cheaper the transportation of heavy goods to all the different parts of the country."

(The Wealth of Nations)

[w13rd0]

1. Most early "free market capitalism" types...

...believed that their concept of how an economy should work would make a hereditary aristocracy impossible. Learning that this wasn't the case, later the concept was "modified" to stifle the growth of "robber baron" types. Only if information and innovation are free and readily available, can a "free market" actually have any hope of succeeding. As soon as the wealth, innovation and intellectual property begin to become heavily concentrated, the system falls apart and becomes stagnant.

[xchrom]

2. lol -- ain't you right! -- adam smith based his economics

on a quaint scottish village.

there will never be anything close to a free market -- mother goose has more to do with reality.

[Silverhair]

3. Yes, and notice that he is talking about a type of ownership tax

on the INDOLENCE AND THE VANITY OF THE RICH, not on their income. In modern terms that would be a sales tax.

A sales tax can be made very progressive by exempting the basics. In Texas food, medicine are not taxed. If you and clothing items below a certain price, rent or home below a certain price, then the poor are taxed very lightly, while the rich have to pay when they buy their luxuries.

The income tax is a mess. Scrap it and replace it with a PROGRESSIVE style sales tax. Tax the people who live like they are rich.

[SharonAnn]

6. No, that doesn't work. It wouldn't tax income, only those things that

are subject to sales tax.

A fair tax system taxes wealth, income, and consumption. It attempts to strike a balance so that behavior is not determined only by the tax consequences, but rather by situation a person/corporation is in and the benefit it derives from society.

If sales tax was the only tax, the wealthy would buy very little that was subject to sales tax. They would get many purchases defined as "Tax-free". For example, they might lobby for the purchase of yachts to be tax-free because of all the jobs provided in building the yachts. Corporations would want yachts to be tax-free because they're a "business expense". So, a small business person would pay tax on a pickup truck but others would pay no taxes on yachts.

Or, there's the solution of buying things in an area where there is no sales tax. Set up a legal entity in a free port and purchase things through that, pay no tax, and you still can buy what you want. Of course, only the wealthy and corporations could afford to do this.

[Silverhair]

7. Have you ever heard of "Tax Shelthers"?

They have already done that to the IRS code. How many poor have 401K plans? How many poor are even able to itemize?

The only loopholes in the sales tax system I am suggesting would be for the things that the poor spend most of their income on. Everything else would be taxed.

If a wealth person choose not to buy much stuff - THAT'S OK. He is living moderately, not consuming a lot of resources, and his excess production is being loaned to society in the form of investments that create jobs.

[1932]

9. "His excess production is being loaned..." ???

I don't understand that part of your argument.

Two questions:

1) How are you going to excempt tax on goods consumed by poor people? Do people have to produce their W4s when they buy anything? Or if tax-free status is determined by the type of good, what would stop rich people from buying those items as a tax-avoidance scheme? (And why would you have a tax system that gives the wealthy so much discretion in their ability to avoid taxes? It would practically make paying taxes voluntary.)

2) What would you set the tax rate at to make up for all the other places you stop collecting tax revenue?

[Silverhair]

11. Answers.

1. Like we do here in Texas. Certain items are tax free. Food, medicine, etc. The basic of life would not be taxed. Of course the rich will buy food, but so what. After they have bought their groceries they still have a lot of money left over that they either have to spend of invest. Spend and it gets taxed, invest and it is loaned to the economy in general an helps the overall economy.

2. Tax rate would have to probably about 15 to 20%. As a percentage of their income the poor would pay far less because fewer of their purchases would be subject to taxation.

People who LIVE THE WEALTHY LIFESTYLE would be taxed more heavily as they have to buy that stuff somewhere. People who live a moderate lifestlye would be taxed less, but then their excess production would be invested, and investment creates jobs.

BTW - an advantage of a sales tax is that much unreported income (And therefore untaxed) would get taxed when it was spent.

Also, the sales tax collection system is already in place. This would free the huge number of people involved in preparing IRS returns or processing them to do other things that would be productive for the economy.

[1932]

10. Smith opposed sales tax, by the way. Here are some quotes:

"All taxes upon the transference of property of every kind, so far as they diminish the capital value of that property, tend to diminish the funds destined for the maintenance of productive labour. They are all more or less unthrifty taxes that increase the revenue of the sovereign, which seldom maintains any but unproductive labourers, at the expense of the capital of the people, which maintains none but productive."

"The middling and superior ranks of people, if they understand their own interest, ought always to oppose all taxes upon the necessaries of life, as well as all direct taxes upon the wages of labour."

(However, he favored sin taxes.)

http://www.futurecasts.com/Smith,%20Wealth%20of%20Nations%20(II).htm

[Silverhair]

12. Notice that he also opposes an income tax.

Further, he seems to wish to minimize the amount of money the crown gets.

[1932]

16. He believed the government should get enough money to operate

effectively. He believed that people shouldn't be miserable. He believed that people needed to be taxed progressively (see the OP).

He also believed that all taxes ultimately are paid from rent, profit or wages, and that it was right to broadly receive revenue from those sources.

[htuttle]

4. As someone here once said, "Most Republicans who quote Adam Smith..."

"...have never actually read Adam Smith."

[youngred]

5. He also favored heavy tariffs

to protect domestic industry.

[1932]

8. Amartya Sen is one of the most progressive, intelligent economists working

today.

His wife is an Adam Smith scholar and Sen frequently cites Smith to support many progressive arguments.

[Beacho]

13. Proof Positive That Free Market Cultists....

Have never read "An Inquiry Into The Nature And Causes Of The Wealth Of Nations".

I've thrown that section out before to Social Darwinist/Objectivist types and the subsequent freak out proves that they don't know jack about Smiths' theories. It was a refutation of Mercantilism, which is what these corporatists are advocating, just from a different direction.

Among the other things that people quote, but never read, are Sun Tzu and DeToqueville.

[hansberrym]

14. souds like he is in favor of a flat tax as opposed to a per capita tax

I don't see any evidence from what you presented for a progressive tax (rate increases with income).

[AJH032]

15. here

From the first quote, Smith advocates taxation "in proportion to their respective abilities." In the second, Smith promotes higher taxation on luxury transportation proportional to its weight, but lower proportional taxation on the transportation that poorer people use (carts, waggons) which would "contribute in a very easy manner to the relief of the poor."