Friday, May 22, 2015

Adam Smith on a Progressive Tax

Adam Smith thought about many things in economics, and taxes were an important area of concern.  He discussed quite extensively the kinds of taxes that governments could raise and what effects each would have on the the economic and financial sectors.  He also had opinions on the proportion of taxes that the various segments of society should pay.  In particular what the wealthy should contribute, and he decidely did not agree with the "flat tax" arguments being bandied about in recent years.  From Wealth of Nations:  "It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."[1]  In this instance, Smith is talking about property tax in particular, but it does not take a great leap to see that this sentiment generalizes to all forms of wealth and income.

Smith clearly understood that the wealthy benefit quite extensively from their situation in society, and that contributing a greater fraction that others to taxes would not harm them in the least.  He also appears to suggest that they should contribute more because they can afford to pay more, while greater taxes on people of more modest means would have an adverse effect on their standard of living.  This also suggests that the wealthy should contribute more because they benefit from the system so greatly that they should be willing to do more than others to support and propagate this system.

So, flat taxers take head, Adam Smith is not a supporter!