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« Back to History of Taxes main page    Transcript for: History of Taxestax history ANNOUNCER: Think Tank is made possible by AMGEN, recipient of thePresidential National Medal of Technology. AMGEN, helping cancerpatients through cellular and molecular biology. Improving livestoday and bringing hope for tomorrow. Additional funding is provided by the John M. OlinFoundation, the Lilly Endowment, and the Lynde and Harry BradleyFoundation. (Musical break.) MR. WATTENBERG: Hello, I'm Ben Wattenberg. Recentrevelations of abuse at the Internal Revenue Service have grabbedheadlines and started a firestorm. Is this just the latest blastchapter in a tornado as old as civilization? At Think Tank today, wewill look past the headlines and into history. Joining us to levy the judgments are Charles Adams, avisiting lecturer on U.S. tax history at the National Archives, andauthor of For Good And Evil: The Impact Of Taxes On The Course OfCivilization, and Stephen Landsburg, professor of economics at theUniversity of Rochester, and author of The Armchair Economist, andFair Play: What Your Child Can Teach You About Economics, Values andthe Meaning Of Life. The topic before the house, a representation of taxation,this week on Think Tank. (Musical break.) MR. WATTENBERG: Taxes have been with mankind, drivinghistorical events since the dawn of civilization. Sumerians leftbehind clay tablet recordings, one of which reads, you can have aLord, you can have a king, but the man to fear is the tax collector. Egyptians hieroglyphics depict ancient IRS agents from 4,000 yearsago getting tough on delinquent taxpayers. The Rosetta Stone, was adocument granting tax immunity to priests. When Jesus was born,Joseph and Mary were on their way to report to a census used by taxcollectors. Many historians argue that the Romans propelled theircivilization to greatness through a wise tax system, and broughtabout their own demise when that system became corrupt andinefficient. Lady Godiva rode naked through the streets of Coventryin Britain to protest taxes levied by her husband. And perhaps mostfamously of all, the British colonies in America launched arevolution against King George III, protesting sugar, tea and stamptaxes, thereby giving birth to the United States of America. In the spirit of that revolution, the United Statesmaintained a relatively simple tax structure for quite a while. Infact, it wasn't until 1913 that Americans had to pay income taxes. The crises of a Great Depression and two World Wars dramaticallyincreased the size and scope of American government, and consequentlyincreased the magnitude of American taxation. Consider the situation today, the U.S. tax code andregulations are now over 17,000 pages long. Taxpayers spend 5.4billion hours each year preparing their taxes. Taxes are now socomplicated that over than 57 million Americans feel it necessary touse a tax preparer. In all, the IRS employs 113,000 people and thesends out 8 billion pages of forms each year. Gentlemen, with that background, welcome. Let me start withyou, Charles Adams, how about starting at the beginning, what is theearliest we know of taxation? MR. ADAMS: Well, the earliest recorded histories that wehave are essentially tax histories, and as you mentioned about theSumerians, they perhaps expressed what we have today, the man to fearis the tax collector. And I think that's just as true. We don'tfear the FBI, we don't fear the president, we don't fear theCongress, but we do fear the tax collector. And certainly, in thosehearings, people said, I'm afraid of the IRS. If you look back into ancient history, like back into Egypt,for example, the only tombs in Egypt that rivaled the Pharaoh werethe tombs of his chief tax collector. And over in Syria, again, theonly man who was pictured in the various reliefs we have that's thesame size as the king, is the tax collector. So the tax collectorhas always been an extremely powerful and important person insociety, because taxes are what makes society run. MR. WATTENBERG: The title of your book about taxationincludes the phrase 'for good and evil'. Taxation cannot only benecessary, but good, is that -- MR. ADAMS: Well, yes, actually, what comes to my mind is onthe -- by the Acropolis in Ancient Greece there is a monument that isthere today that says, to the honest tax collector, which means thatthe Ancient Greeks would honor a man who was a tax collector who washonest. And in Greece the most noble man in society ran the taxbureau. It would be like today having Ronald Reagan as theCommissioner of Internal Revenue, or maybe Winston Churchill as theCommissioner, in their later days. MR. WATTENBERG: Did they have the same sort of argumentsabout what kind of taxation is the right kind, should it beprogressive, should it be flat, should it be a sales tax, should itbe an excise tax, should it be a tariff? I mean, are these newarguments we have now, or is this just the same old recording? MR. ADAMS: Well, Ben, actually, they labored with thequestion as to how could you have a civilized society and still havea free society, because all the civilized societies had been producedby direct taxes. And they said that direct taxes produced tyranny. MR. WATTENBERG: What does a direct tax mean? MR. ADAMS: A direct tax is a tax that is directly on thecitizen. And they said that indirect taxes are consistent withfreedom. And that's the same idea carried over to our founders, andinto the great sage and the enlightenment Montesquieu. He said,direct taxes produce slavery, and indirect taxes produce freedom. And that idea found its way into our Constitution. So they laboredwith the question. MR. WATTENBERG: Steven Landsburg, you had a particularlypained expression when Charles made this differentiation betweendirect and indirect taxes. Do I suspect that you don't buy that? MR. LANDSBURG: I'm not convinced that indirect taxes are anyless likely to lead to tyranny or to abuse than direct taxes. Ithink that the safeguard against tyranny, the safeguard againstoppression, and the safeguard against over taxation is not in thedistinction between directness and indirectness, but in some kind ofa system that's in place to make sure that one group of people can'tvote to tax another group of people without any cost to themselves. Speaking again of the wisdom that's in the Constitution, wehave in the Constitution a takings clause in the Fifth Amendment,which says that if the government wants to take your front lawn andturn it into a park, they can't do that without taxing a whole lot ofother people in order to pay you for the value of your front lawn. That means that if the government wants to do something like this, ifthey want to do something that could be oppressive or destructive ofliberty, they've got to hurt a lot of people, not just one person. And that I think is a very good safeguard. They are more -- they aremuch more reluctant to do something that will make them unpopularwith a large number of people than with a few. Now, when you have a tax system in place where it's possibleto raise taxes on a small number of people, and leave most peopleuntouched, I think that is a recipe for abuse. That's why I've -- MR. WATTENBERG: Doesn't that challenge the democratic idealthat people, through a majority, can tax each other? MR. ADAMS: Well, I think the democratic ideal is that a law,to be just, has to mete out equal treatment to all. And, again, inthe Constitution, the founding fathers tried to do that withtaxation. They said taxes should be uniform throughout the country. And if you read the debates they said, first, common to all, anduniform and equal. And they did this because of what was happeningin France at the time, in which there were all classes of citizenthat didn't have to pay tax, or paid no tax, or paid low tax. Andthey wanted taxes to be common to ue ideals really are. MR. WATTENBERG: So you are saying that a child's mommy willnot say, Johnny, Joe has more toys than you, we ought to take sometoys from Joe and give them to you, Johnny. That that's not the wayit works? MR. LANDSBURG: Exactly, no parent tells a child that. MR. WATTENBERG: But, let's just look at that analogy alittle bit, suppose the mommy goes to Joe's mommy and says, theSoviet Union, the evil empire, has missiles pointed at thisplayground, and unless we take money from everybody who has money,and it's going to mean more money from you because you have moremoney, so we'll put up -- we'll have fighters and our own missiles,so all of our children won't get killed. Is that theft, or is thatunfair? MR. LANDSBURG: No, I don't think it is. And I think thatthat points up a very important distinction between taxation in orderto provide services that are of value to people, and taxation for thepure purpose of redistribution, which is a lot of what taxation is. It's far from the only thing that taxation is. And the point that Iwas making, I think, is confined to that, that our true ideals do notcountenance this kind of forcible coercion, when it comes to thequestion of redistribution. MR. WATTENBERG: Let me go back into this historicalsituation for a moment. Is the level of anti-tax sentiment todaygreater or lesser than it was, say, 100 years ago, 200 years ago? MR. ADAMS: Well, yes, let's talk about America. I thinkthere's two phases of American tax history. One is from the time ofthe revolt against the British up until 1913, when there was a verypowerful anti-tax feeling throughout the country. Now, a goodexample is that in the Atlantic Magazine in 1878, Brooks Adams, whowas one of the last leaders of the great Adams family out ofMassachusetts, wrote an article that said, all taxation is an evil,and heavily taxation, indiscriminately levied, is the worst calamitythat can befall a people. Now, can you imagine that? MR. WATTENBERG: He said that all taxation is an evil? MR. ADAMS: Is an evil, yes, period. And, you know, if theAtlantic Magazine wrote that today they'd get a call from the WhiteHouse and the Congress and the Commissioner of Internal Revenue. That's the way the American people felt for 150 years. MR. WATTENBERG: Is that the way you feel now? MR. LANDSBURG: Again, I think that there are certainlyuseful things that government does, and somehow those things have tobe funded, and we have to have some kind of taxes. I think theimportant thing is, again, to have safeguards so that taxes, first ofall, don't create bad incentives, so that they don't discouragepeople from working. And on that point, you know, I think it's veryinteresting that the Republicans for 20 years have been telling usthat the whole problem with taxes is that high marginal rates punishpeople for working. MR. WATTENBERG: Explain marginal rates. MR. LANDSBURG: Marginal rates, the additional tax that youpay when you earn an additional dollar. MR. WATTENBERG: Okay. MR. LANDSBURG: They've been telling us for 20 years thatthose high marginal rates punish people for working, and that's thewhole problem. So what do they do when they finally have a chance tocut taxes this year? Half of this tax cut that we just got is thischild tax credit, where you get $500 for each child that you have, itdoes absolutely nothing, absolutely zero, to cut marginal rates. And, in fact, it increases the punishment for working, because as youmove into higher income brackets, the child tax credit phases out. So it actually discourages work. It goes 100 percent counter to whatthe Republicans have been telling us is important for the last 20years. MR. WATTENBERG: Well, but what it also does, in a societywhich is having a lot of problems with family structure is, it'ssaying that we are going to move toward a more pro-natal taxstructure, keeping up with the exemption as established in the 1940s,which has since been eroded substantially, and we are going to makeit easier for people who want to have children to be able to havechildren. MR. LANDSBURG: I think it is absolutely, though, a lie tocall it a tax cut. It's $500 that you get for every child thatyou've got. You get that $500, whether or not you pay taxes. Itphases out for people with higher incomes. So it's simply a cashpayment that you get for having children and having a low income. Inother words, it's a welfare program, not a tax cut. They passed awelfare program and they called it a tax cut. MR. WATTENBERG: Now, this brings us to sort of a veryimportant splitting wedge in this argument. There seem to be twobasic views of taxation. One view would be that of socialengineering. And the other view is, look, it's a necessary evil, wehave to raise some money for certain things that we all agree on thatthe government must do. Now, what are the historical antecedents ofthat argument, Charles? MR. ADAMS: Well, I suppose the one that comes to my mind isthe story of Ancient Rome and the rabble. The Romans, having quite abit of surplus money, decided that anybody who lived in Rome, anymale, didn't have to work, and that the Roman government wouldprovide free bread, free food, free entertainment. And at thatparticular time there were 200,000 Romans who qualified. Within afew shorts years there were almost a third of a million whoqualified. They threw down their plows, they walked away from theirjobs. They said, go to Rome, you don't have to work, the Emperorwill take care of you. And that was the first massive welfare systemin the world. And it almost wrecked Rome, then and forever, becausethe Emperors could never get rid of it. MR. WATTENBERG: Let's move on for a moment. Let's move intothe realm of the hypothetical. Instead of saying, well, let's wigglethis part of the tax code a little bit, and wiggle this part of thetax code a little bit, because the thing is, I think everybody fromright to left agrees, it's a mess. It's this huge code with agazillion loopholes. Suppose I asked each of you to say, look,forgetting ideology, or even with ideology, start from ground zero,tell me a tax code that would work for the United States. MR. ADAMS: Well, I would think, again, being an historian,that we'd look back in history at those nations that had the best taxsystems. And I think that a good tax system will touch all of thewealth of a nation, and it will do so moderately, and it will do sofairly. The problem with the tax code is that nobody thinks thatit's fair because nobody knows if it's fair. But if you taxed allthe wealth moderately, and I realize that we'd like to have a singletax, but there is no -- MR. WATTENBERG: All of the wealth or all of the income? MR. ADAMS: Well, income is an aspect of wealth. MR. WATTENBERG: Well, I understand. But you wouldn't say toa person who has $10 million in the bank, we're going to tax you onyour wealth, only on the interest that you earn, on the income,right? MR. ADAMS: Not necessarily. You might -- MR. WATTENBERG: You might go for a wealth tax. MR. ADAMS: I realize that these are somewhat painful ideas,but the British during the time they rose to greatness, unlike Europewhich had a brutal excise tax, the British had customs taxes, theyhad land taxes, they had house and window taxes, they had some excisetaxes, and they had stamp taxes. So they had five taxes, none ofwhich were too high, and which produced a revenue for them to run theBritish Empire, make it the greatest nation on earth, and the rateswere never high in any field. Now, the idea there is that you can'thave a single tax. MR. WATTENBERG: Now, was that in counter-distinction to theother European nations? MR. ADAMS: Yes. MR. WATTENBERG: Why? What did the other European -- MR. ADAMS: The other European nations had a heavy exciseattached to everything in sight. And every time something turnedover, it was taxed. And it was a very destructive tax. That was thetax that brought down the collapse of the empire of the Spanish. Itdestroyed the great Netherlands Empire because it was this heavy taxthat touched everything in sight every time it turned over. TheBritish had a very mild excise, it was very limited in scope, and therates were low. MR. WATTENBERG: But, you say that this nice tax system madeEngland or helped make England a great power. MR. ADAMS: That's correct. MR. WATTENBERG: And I say, the United States today, with itscrazy quilt tax code, is 10 times more powerful, more influential,and greater than the English Empire ever was. So -- MR. ADAMS: Okay, but America's greatness is not because ofits tax code. America's greatness is because of its people. It'sthe entrepreneurial -- it's the ambitiousness of the American people. They're hardworking. It's the American people that make Americagreat, and the government couldn't wreck it even if it tried, because it's the way the American people are. Now, I don't want to sound like waving the flag, but if yougo to other countries -- MR. WATTENBERG: If there's any program on television thatencourages waving flag, you are on it. That's all right. MR. ADAMS: Okay. American people, because I've lived inforeign countries and I've known other people, and they just have theheart and soul to be successful, and even the government can't ruinit, and even the Internal Revenue Code, as rotten as it is, can'truin it because that's the strength of the American society. MR. WATTENBERG: Okay. It is now your turn. MR. LANDSBURG: The one thing I would impose on any realworld tax code is that there ought to be cap. There ought to be somelevel at which, once you've paid a certain amount, say, five timesthe average or 10 times the average, your obligation to society isfulfilled, and you can go on and you don't have to pay any more taxesafter that. MR. WATTENBERG: So, Bill Gates will pay his taxes, but hecan end up with $46 billion, $86 billion, $500 billion, you don'tcare if Bill Gates -- I'm using him as a metaphor, as everybody does-- owns half the damned country? MR. LANDSBURG: That's right, and for two reasons. First,because I think that there is simply no moral basis for arguing thatas his income goes up, his obligation to his countrymen goes up intandem without any limit. Second, and more importantly -- MR. WATTENBERG: We have a limit. Now, you're just going wayahead. You're saying -- I mean, we don't have a 99 percent taxrate. We don't have an 89 percent tax rate. We have a 39 percenttax rate. MR. LANDSBURG: But he pays -- right, 39 percent of whateverhe earns. I mean, surely there is some number of millions of dollarsat which he has fulfilled his obligation to the rest of us? MR. WATTENBERG: Why? I mean -- MR. LANDSBURG: But, more importantly -- MR. WATTENBERG: Wait a minute. Why is it wrong if you saythat 61 percent of what he earns he's going to keep, and 39 percenthe's going to give to the government. Whereas, somebody who ismaking not a billion dollars a year, but $30,000 a year, or $40,000 ayear, only he doesn't pay 39 percent, he pays 15 percent. What is soterrible about that? MR. LANDSBURG: To me, it seems that the basis for any kindof tax like this has got to be that Bill Gates has some -- comes intothis world with some obligation to his fellow citizens, and it's veryhard for me to see how that obligation can be unlimited. There mustbe some point at which you've done what you are -- MR. WATTENBERG: It is limited. It's limited to 39.6percent. MR. LANDSBURG: That's not a limit. MR. WATTENBERG: Why not? MR. LANDSBURG: A number of dollars is a limit. MR. WATTENBERG: I know, but you said five times the rate,not the limit. MR. LANDSBURG: Five times the average. MR. WATTENBERG: Right. So, it wouldn't be 39.6, it would be32.1, but it would still be a rate. And if he made $100 billion -- MR. LANDSBURG: No, no, no. It would be a number of dollars. That would be five times the number of dollars that the averageperson pays. MR. WATTENBERG: Oh. MR. LANDSBURG: And the more important reason for that is notthe moral reason, but the practical one, that when you put on a caplike that, it means that every time you raise Bill Gates' taxes,you've got to raise somebody else's taxes, too. And so, it takesaway the temptation to come after a small minority and exploit them. MR. WATTENBERG: Poor billionaires being the minority, yes. MR. ADAMS: Yeah. What comes to my mind is, going back toAdam Smith, and to the founders, and the work apportionment thatappeared in the Constitution. The reason it was apportioned bypeople was because of the slavery problem. But the real theory wasthat the wealth of the nation should be proportioned to the expensesof the nation, and that was the measure of just taxation. In other words, it's like the great estate. If you own 10percent of land, and I own one, what are the costs of maintainingthat? You pay 10 percent, I pay 1 percent. That was what justtaxation was. So that would mean that Bill Gates would pay hisproportion of the cost of running the country based on his wealth. So, if he's worth a billion dollars, and if the cost of maintainingthe government is 10 percent, then he'd pay $100 million. You seehow it would work? MR. WATTENBERG: But his tax rate and the tax rate ofsomebody making $30,000 would be the same rate? MR. ADAMS: Yes, the rate would be the same. I think thesystem could be progressive -- MR. WATTENBERG: Now, there is one disadvantage at least withthat view, which is that Americans won't vote for it? MR. ADAMS: That's right. MR. WATTENBERG: So that's sort of the inherent politicaltragedy that you both see? I don't see it, I must tell you. MR. ADAMS: In this sense, the Constitution said tax had tobe uniform, and uniform means the same for everybody. So, a uniformrate would be the constitutional rate. Now, the Supreme Court saidthat that doesn't mean anything. And scholars have said that theuniformity clause is an empty shell, but it wasn't intended to be anempty shell. It was meant, the uniform rate, uniform tax, across theboard the same. MR. WATTENBERG: But there was an amendment to theConstitution for an income tax -- MR. ADAMS: That's true. MR. WATTENBERG: -- which says, it will not be uniform, asyou said, rich people will pay more. That is, once it's amended,that is the new Constitution, right? MR. ADAMS: No, the -- well, yes, that is the newConstitution. MR. WATTENBERG: Anyway, listen, we are getting not only farafield, but we are way over time. Thank you very much, CharlesAdams. Thank you very much, Steven Landsburg. And thank you all. For Think Tank, I'm Ben Wattenberg. ANNOUNCER: We at Think Tank depend on your views to make ourshow better. Please send your questions and comments to: New RiverMedia, 1150 Seventeenth Street, Northwest, Washington, D.C. 20036;or e-mail us at thinktank@pbs.org. To learn more about Think Tankvisit PBS Online at www.pbs.org. And please let us know where youwatch Think Tank. ANNOUNCER: This has been a production of BJW, Incorporated,in association with New River Media, which are solely responsible forits content. Think Tank is made possible by AMGEN, recipient of thePresidential National Medal of Technology. AMGEN, helping cancerpatients through cellular and molecular biology. Improving livestoday and bringing hope for tomorrow. Additional funding is provided by the John M. OlinFoundation, the Lilly Endowment and the Lynde and Harry BradleyFoundation. (End of program.) Back to top  Think Tank is made possible by generous support from the Smith Richardson Foundation, the Bernard and Irene Schwartz Foundation, the Lynde and Harry Bradley Foundation, the John M. 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