It was on November 13th, 1789, that Benjamin Franklin wrote in a letter to Jean-Baptiste Leroy a phrase that has reverberated ever since:
“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
It reverberates because everyone understands it encapsulates two truths. Everybody dies. It might not always be true in future, but it has been thus far. It is also true that the essential services of government have to be financed, and it has nearly always been the case that this has been achieved by levies on some of those for whom these services are provided.
Adam Smith proposed four canons of taxation. First was equity, meaning that it should be levied on people proportionate to their ability to pay. Second was certainty, in that it should be fixed and known in advance. Third was that it should be charged at a time when it is convenient to pay it, and fourth was that it should not be over-costly to collect compared with its yield.
People have suggested other canons, of which I think simplicity has much going for it, and I would add that no tax should be levied whose damage to the economy is disproportionate to its yield.
Franklin was right about death and taxes, but he had them in the wrong order. Taxes nearly always come before death, with the exception of one of my favourites Inheritance Tax, sometimes called the death tax, which comes after death, not before it. Many oppose the death tax because it is almost always levied on funds that have already been taxed and yet we may anticipate that its effects are only set to increase over the next few decades. Avoidance of double taxation is desirable, but it is by no means always followed. Earnings on which income tax has been paid are usually taxed again when they are spent, either on VAT, or on alcohol or tobacco duty, or on insurance or airline flights.
Corporation tax is charged on the earnings of companies before profits are distributed to investors, then those dividends are taxed again on the recipients as income tax. The rule to be aspired to is that the state should receive its cut once.
Other ways of financing government have been tried, but they usually put costs indirectly onto individuals. The sale of monopolies by Stuart monarchs was unpopular because it put up the prices of essentials such as salt and soap. More recently, the auctioning of bandwidth to raise revenue has made calls and content more expensive for consumers.
One of the strangest taxes has been the National Lottery. It is very largely paid by the less well off, and at least some of it is spent on the pleasures of the more fortunate who patronise operas and art galleries. And it is entirely voluntary. Yet of all taxes it is probably the least unpopular.
But although Franklin was onto something when he made his famous comment, that view is perhaps better characterised as an 18th century perspective on life. Less well known is that the thought had been expressed by two earlier writers. Daniel Defoe in “The Political History of the Devil” (1726) had said “Things as certain as death and taxes, can be more firmly believ’d,” and even earlier in Christopher Bullock’s “The Cobbler of Preston” (1716) appears the line, “Tis impossible to be sure of any thing but Death and Taxes.”
Much of our current but conflicting thoughts on taxation originate in the 18th century, as my book ‘The intriguing Truth About 5th April’ demonstrates.
At a time when increases in taxation appear all but inevitable, it is well worth returning to the source of our thinking on such matters to seek out some erudite and original thought along with a bit of refreshing clarity.