Tuesday, April 11, 2006

Taxes and Decline

The day of doom fast approaches in the United States. Income tax returns need to be filed by April 17th or else! (Yeah, I know. Extensions are available but you might still get a penalty if you do not pay on time.)

Taxation is not new. It is probably as old as the first human governments. However, some believe that excessive taxation has brought down past societies.

In the essay How Excessive Government Killed Ancient Rome, Bruce Bartlett argues that heavy taxation was a root cause of the fall of the Roman Empire. He wrote, "As the private wealth of the Empire was gradually confiscated or taxed away, driven away or hidden, economic growth slowed to a virtual standstill. Moreover, once the wealthy were no longer able to pay the state's bills, the burden inexorably fell onto the lower classes, so that average people suffered as well from the deteriorating economic conditions. In Rostovtzeff's words, 'The heavier the pressure of the state on the upper classes, the more intolerable became the condition of the lower' (Rostovtzeff 1957: 430)."

I doubt taxation alone brought about the fall of Rome. There were other factors such as marauding German tribes. But it may well have played a role.

Americans have not always had to pay an income tax. This type of taxation was first imposed by President Lincoln during the American Civil War. However, the Supreme Court found that a Federal income tax was unconstitutional in 1895.

The Brief History of IRS notes that, "In 1913, Wyoming ratified the 16th Amendment, providing the three-quarter majority of states necessary to amend the Constitution. The 16th Amendment gave Congress the authority to enact an income tax. That same year, the first Form 1040 appeared after Congress levied a 1 percent tax on net personal incomes above $3,000 with a 6 percent surtax on incomes of more than $500,000."

Only 1% and 6%! And the government got by just fine for the most part. Does a government which has to impose a 10%, 15%, 25%, 28%, 33%, and 35% tax rate risk decline just like the Roman Empire? And then of course there are local and state taxes too...

I realize taxes are higher in Europe but this may not be a defense for a high tax rate in the USA. It could mean that those European nations simply will have economic collapses sooner than America. Does high taxation discourage investment and convince the average citizen not to start a small business of his/her own? Or, is no tax rate ever high enough and that all the ills of the world can be solved if income can be redistributed via government bureaucracies? I think believing either may require a leap of faith.

For fun, check out the 1913 1040 form. With instructions, it was only four pages long! And then go and look at all of the forms required today. Is Washington starting to look like Rome in decline? Probably not but one has to wonder how high taxes can go before collapse is likely.

Regardless, I want to send one message to the IRS. My check is in the mail.

1 comment:

zeno said...

What kind of information do we have on Roman tax codes? What percentage of wealth did the "upper classes" own?
What percentage of taxes were they required to pay. Same questions for the "lower classes". Do we know that the burden expected from the upper classes rose during the empire's waning? Isn't the burden of the lower class in the U.S. today higher than it was 30-40 years ago? Isn't the burden of the upper class lower?