High Taxes Didn’t Give Us Democracy

By Matthew C. Klein

Saturday, April 22, 2017

Note: This piece originally appeared at FT Alphaville. It is reprinted here with permission.

April 18 was tax day in America this year. On what is normally a day of lamentation, the contrarians at Slate decided to celebrate the occasion by commissioning a tax-law expert to argue that “modern Western democracy is nothing more than a byproduct of a series of tax disputes”.

This is . . . not right.

While we would never presume to explain the origins of representative government in a single blog post, we think it’s worth highlighting a few alternative theories.

Start by considering why the “tax disputes” highlighted by Professor Chodorow emerged in the first place.

In all three cases he mentions — the Magna Carta, America’s resistance to the Stamp Act and Townshend Acts, and the creation of the U.S. Constitution — the government was trying to extract more from its people to pay for increasingly destructive wars. Greater influence on future decisions would be the compensation for paying up now.

This didn’t always work. Anyone familiar with the history of the Magna Carta knows that King John had his deal revoked almost immediately — with the help of the Pope — and plunged England into civil war. The barons had to repeatedly win wars against the monarchy over the course of centuries to establish the supremacy of Parliament. Nowadays the Magna Carta is irrelevant to U.K. law as actually practiced.

American colonists, meanwhile, would have been perplexed by the claim that their capacity for self-government was a response to odious taxes. Self-government and relative independence from Britain were things they had brought with them, in various forms, in the 1600s. Many would have been unwilling to pay more tax even if they could get seats in Westminster, since they knew they would be outnumbered by the English. The revolutionaries were incensed by the perceived change in their status. They were fighting (in part) to restore traditional rights they believed they had possessed before the Seven Years War and thought had been lost.

The formation of the federal government was also primarily about war, with taxes as a means to an end. For one thing, the new structure would make it easier for some states to service the debts incurred during the War of Independence. And while delegates deliberately avoided discussing it during the Constitutional Convention itself, the desire to build a navy to fight the Barbary pirates was one of the main arguments made in favor of the creation of America’s federal government.

Britain’s response to World War I is an even better example of how popular representation was offered as payment for violent service to the state. The U.K. finally granted universal male suffrage in 1918 as a concession to the men of the working class who were dying in France but ineligible to vote because they owned no property, nearly doubling the voting rolls. To win the support of the Empire, the British offered autonomy for the dominions as well as self-government for India. (That latter promise wasn’t meaningfully honored but it was nevertheless made.) Ireland’s independence wasn’t offered as a gift by Britain, but it was aided by the U.K.’s war-weariness.

Things don’t always work out as smoothly when the government tries to squeeze the people to pay for unpopular conflicts. Consider France. The monarchy had accumulated vast debts in its 18th-century wars with Britain. (Independent America was the primary beneficiary.) When Louis XVI called the Estates General he was hoping to raise money in exchange for sharing power. Instead he unleashed the political instability that has characterized France ever since. After the ancien régime collapsed there have been, by our count, five republics, three civilian dictatorships, two monarchies, and two military dictatorships.

Tellingly, almost half of those changes in regime (five out of twelve) can be blamed on the incumbents’ losing in battle, rather than anything having to do with taxes: Napoleon I to Charles X, Napoleon III to the Third Republic, the Third Republic to the French State, the French State to the Fourth Republic, and the Fourth Republic to the Fifth Republic.

Some of those transitions illustrate how losing wars can sometimes push unrepresentative systems into becoming more democratic. (Although in France’s case it was almost as likely for military defeat to push the government into becoming less democratic.)

The Habsburgs responded to their loss against Prussia with the liberalizing reforms of 1867, while the Russian autocracy adopted a constitution after losing to Japan in 1905. Before the Bolshevik coup, Russia briefly experimented with substantially greater reforms after its losses in 1917 against Germany. America’s voting age was lowered from 21 to 18 during the height of the Vietnam War. In all these cases, the issue wasn’t taxation, but the need to restore legitimacy through the guarantee of rights and the extension of the franchise.

Of course, war is far from the only motivator for making the government more representative.

Cisleithania, the non-Hungarian half of the Habsburg Empire after 1867, gradually broadened the franchise while eliminating preferences for property-owners in an effort to build a common imperial identity and thwart ethno-nationalism. By 1907 all men had an equal right to vote. Universal male suffrage was built into the North German Confederation back in 1867, arguably as a form of nation-building by Bismarck to bind the smaller German states to Prussia, and continued throughout the history of the German Empire.

Meiji Japan adopted elements of the British and Prussian constitutions because they represented modernity, while Taisho Japan granted universal male suffrage in 1925 because regular Japanese concluded they deserved it. The American civil-rights movement and women’s-suffrage movements globally were driven by (often religious) idealism about equality. South Korea transitioned from a military dictatorship to a Western-style republic in the late 1980s because there was no longer a perceived need for an authoritarian regime to promote economic development. Pinochet’s dictatorship was designed to be transitional, and his rule ended because he honored a deal to hold a referendum in 1988.

But these examples are far too modern. Self-government goes back at least as far as the ancient Greeks, who would consider every modern state an unaccountable oligarchy — even without the unreasonable imposition of having to pay direct taxes.

Being a full citizen, to them, meant the right to vote and debate policy in the assembly. This was considered the other side of the obligation to fight in defense of your city. Delegating the power and the responsibility to others would signal you weren’t a full member of the community.

Ancient Greek infantry (hoplites) were expected to buy their own bronze armor and weapons. That limited political participation to men who could afford it. Aristotle argued this explained the preponderance of oligarchies, since most Greek cities were based on land.

He also argued, however, that cities such as ancient Athens, which were naval powers, would be more likely to eschew property qualifications and therefore be true democracies. After all, triremes were manned by large crews of urban poor (thetes). Trireme crews were paid for their service and the democracies were known for paying poor citizens to participate in the assembly and serve on juries.

The rights enjoyed by these citizens did not come about from their tax status. Greeks notoriously resisted direct taxation, which is partly why hoplites were expected to buy their own armor. Athens’s largesse to its thetes was paid for not by impositions on richer Athenians but with “tribute” collected by members of the Delian League in exchange for protection from the Persians. (Foreigners living abroad, as it were, although non-citizens resident in Athens also paid taxes.)

Scholars think the first direct tax on Athenian citizens was only leveled several years after the start of the great Peloponnesian War, in 427 BCE. Despite continued struggles fighting the war, the tax was discontinued shortly thereafter. Athenians would find it bizarre to characterize their system as the product of tax disputes, rather than the wisdom of Solon and the bravery of the citizens who rose up against Peisistratus.

One last point. Chodorow closes his odd argument with the famous quip that “taxes are the price we pay for civilization.” The line is typically attributed to Oliver Wendell Holmes, who wrote that “taxes are what we pay for civilized society” in 1927.

(Holmes commonly gets the citation because he was quoted by Franklin Roosevelt in 1936, although American variants of the theme go back at least as far as 1848. Those earlier passages are usually more explicit that taxes pay for police, courts, and the military. As far as we know, Holmes is not arguing that sterilizing government spending with taxes can help curtail inflation, which also threatens the social order.)

Alphaville checked what Americans paid in tax rates back in 1927.

According to the Bureau of Internal Revenue, the predecessor of today’s Internal Revenue Service, the average individual income-tax rate was just 3.7 percent ($830 million out of $22.5 billion). But this overstates things, since there were only 4 million tax returns filed in a year when America’s population was 119 million. The effective corporate income tax rate was somewhat higher, at about 12.5 percent ($1.1 billion out of $9 billion). Combine the two together and you end up with a total of around $2 billion in federal income taxes paid.

For perspective, nominal gross domestic product was worth about $105 billion in 1929. Shave a little bit off that to estimate NGDP for 1927, add in federal tariffs on imports and state and local taxes on goods and property, and you still end up with a total tax take of around 5 percent of output, probably a bit less. Today in America the total tax burden is a little more than 26 percent. The average among countries in the Organisation for Economic Cooperation and Development is currently above 34 percent.

We would agree with Chodorow and Holmes that free societies require some monetary support from the citizenry. But it’s ridiculous to justify current levels of taxation with ahistorical claims about the origins of democracy and with quotes from people who lived in radically different eras.