The Income Tax vs. the Consumption Tax
It is undeniable that Jefferson had no problem with the rich being taxed more than those of modest income, i.e., a graduated tax, as discussed in greater detail in The Flat Tax and suggested by the following passage:
"Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise." --Thomas Jefferson to J. Madison, 1785.
This passage has direct reference to pre-revolutionary France, of course, but the principle of a graduated tax in which the rich pay more percentage-wise than the poor was clearly embraced by Jefferson and applicable beyond that particular instance. Now, whether Jefferson would support an income tax is another question. There is the following well-known passage:
"What more is necessary to make us a happy and a prosperous people? Still one thing more, fellow citizens--a wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned." --Thomas Jefferson: 1st Inaugural, 1801.
In his time, virtually all government revenues came from taxes imposed on imported goods, which meant the tax was imposed almost exclusively on the well-to-do. As a result, almost the entire burden of financing the government was borne by the rich. Jefferson apparently had no problem with that. It was a tax on a kind of consumption in which mostly the rich indulged. On the other hand, to "take from the mouth of labor the bread it has earned" refers to burdensome taxes on everybody, and actually sounds like it could refer to an income tax. So there is good reason for believing that Jefferson might oppose a tax on incomes. Jefferson copied a passage from Montesquieu that indicated a rejection of a tax on persons, which the income tax, in effect, is.
"[Montesquieu wrote in Spirit of the Laws, XIII,c.14:] 'A capitation is more natural to slavery; a duty on merchandise is more natural to liberty, by reason it has not so direct a relation to the person.'" --Thomas Jefferson: copied into his Commonplace Book.
In effect, the Excise tax of Jefferson's time could be called a selective consumption tax. It was not placed on all consumption; if it were, that would be just as burdensome as any tax that took "from the mouth of labor the bread it has earned." Since most of the goods needed for ordinary survival were produced locally and not imported, an excise tax automatically spared those least able to pay.
"The rich alone use imported articles, and on these alone the whole taxes of the General Government are levied." --Thomas Jefferson to Gen. Kosciusko, 1811.
If we today placed a consumption tax on everything BUT the basic items needed for existence, such as food, rent and housing, basic wardrobe items, etc., such a tax would closely correspond in character to the excise tax of Jefferson's time. Moreover, such a tax, while raising the revenue necessary to run the government, could also have a very salutary effect. Not that government should be in the business of manipulating people's spending habits; but if there must be a tax, a favorable side effect resulting from its administration should not be resisted. If such a means of gathering taxes also encouraged people to spend their money on the necessities of life rather than on frivolities, no one should object to that. One of the problems that many people on low incomes have is they do not know how to manage their money. If a tax system encouraged them to spend money on necessities and avoid extravagance, that would certainly be a desirable side effect.
The question has been raised whether a consumption tax would be sufficient to raise the vast sums needed by today's government. But as someone has pointed out, the great increase in the cost of items because of a consumption tax added to them, would be offset by the correspondingly equal increase in take-home pay due to the elimination of the withholding tax. None of these tax schemes are going to reduce the amount of taxes needed; they just shift the burden around. A selective consumption tax might produce another benefit: the contrast between the prices of ordinary goods needed to sustain life, which would be untaxed, and the prices of the other desirable but less essential items, which would have the consumption tax, would keep us mindful of how severely we are being taxed, and might also encourage us to rein in our representatives and demand that they decrease government expenditures.
It could not be considered proper for government to manipulate our lives with the system of taxation or with any other legislative means. As Jefferson wrote,
"A sound spirit of legislation,... banishing all arbitrary and unnecessary restraint on individual action, shall leave us free to do whatever does not violate the equal rights of another." --Thomas Jefferson: Report for the Univ. of Va., 1818.
But the influence of government in our lives is inevitable regardless of what government does. And if taxes must be raised and we must be influenced by whatever means are employed to raise them, we might as well have it as beneficial as possible.
A consumption tax could be an extra burden on persons with low incomes. Most such people live hand-to-mouth and pay no income taxes now. If such a tax were instituted, they would receive no immediate influx of money previously withheld as income tax, since they pay none. For them, prices would go up substantially without any corresponding increase in the amount they had to spend. Even if they got a rebate at the end of the year, the fact that they live hand-to-mouth means that such rebates would not alleviate the increase in their day-to-day expenses. But if essentials, such as food, housing, and basic clothing were untaxed, that might at least provide partial relief.
We should always bear in mind that there never will be a tax system that will be pleasing to anyone, much less to everyone. No matter how much income a person has, it will almost always be considered not quite enough for the life-style they feel they must follow, and they will forever dream of how well off they would be if they did not need to pay taxes at all. At best, we can only devise a system that is fair and places the heaviest burden on those most able to bear it.
"Taxation is, in fact, the most difficult function of government and that against which their citizens are most apt to be refractory. The general aim is, therefore, to adopt the mode most consonant with the circumstances and sentiments of the country." --Thomas Jefferson: Introduction to Tracy's Political Economy, 1816.
A mode of taxation that is "most consonant with the circumstances and sentiments of the country" will be one that is fair, that will put the heaviest burden on those best able to bear it, and that "shall not take from the mouth of labor the bread it has earned." A consumption tax that does not tax essential items needed for living would seem to fill the bill.
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