We end this course with the same gentleman that we began the course with, Adam Smith. In the “Wealth of Nations”, Smith devotes a full third of his founding treatise on economics to political economy, justice, and taxation. In examining the different forms of taxation, Smith adheres to four maxims which a good tax should conform to:
“The subject of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State.”
“The tax each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to ever other person.”
“Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it.”
“Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the State.”
Note first that Smith regards taxes as inevitable in a market economy and that “all should contribute to the support of the government”. . we need those public goods. Note also that Smith identifies with the “benefits received ” principle of taxation when he suggests that taxes should be paid by those whom have benefitted from things of value “enjoyed by the protection of the State.” He also identifies with the “ability to pay” principle of taxation in that he wants taxes to be “proportional to abilities” and income.
Finally, note that Smith is a clear advocate of minimizing taxes so as to minimize any distortions on productive and allocative efficiency as we have studied those concepts in this course . . and in order to preserve and promote free enterprise.
Pick a particular tax. You can use one as described in your text in Chapters Five and/or Thirty One or another at the Federal, State, or local level that you know of. But NOT ONE ALREADY POSTED BY A CLASSMATE! So first come, first serve on this one. Just read your fellow classmates postings beforehand. Also, everyone pick just one tax, keep the pool open for your classmates.
Indicate whether you think the tax meets Adam Smith’s criteria as identified and explained above. Is it efficient? Is it equitable and just?
APA – 1 Reference