#WealthofTweets: Book 5.2

consumption taxation proportional taxes

Of the Sources of the General or Public Revenue of the Society

Sarah Skwire and Janet Bufton for @AdamSmithWorks 
26 Feb • 17 tweets • adamsmithworks/status/1365308475685941254

Now you know all the things #AdamSmith has to say about what the government should spend money on. But that money's gotta come from somewhere. What does #WealthOfNations say about how governments should get money to spend? (V.ii.) #WealthOfTweets #SmithTweets

I know the tax nerds have been waiting for this chapter (we ❤ you, nerds), but first Smith wants to talk about other sources of revenue "which may peculiarly belong to the Sovereign or Commonwealth". (V.ii.a) #WealthOfTweets #SmithTweets

IOW, before we get to taxes we've gotta cover businesses run by the sovereign (like the post office), public banks, public lending, and revenue from public lands. But don't worry, we can do that pretty quickly...ish. (V.ii.a) #WealthOfTweets #SmithTweets

States are generally bad at running businesses. The incentives don't line up, and the character of the two activities is too different to succeed in both. (V.ii.a.4–7) #WealthOfTweets #SmithTweets

Except the post office. I mean, *no one* could lose money via a public post office, right? (V.ii.a.5) #WealthOfTweets #SmithTweets

Another exception is very small states running weird little businesses like the public wine merchant and apothecary in Hamburg. Smith grants that might work out, but these states "cannot be very great" if they have income like this. #Burn (V.ii.a.4) #WealthOfTweets #SmithTweets

Governments might also try to earn interest on stock, but this is unusual since international lending goes badly wrong in wartime, when foreign governments just keep the money. (V.ii.a.8–12) #WealthOfTweets #SmithTweets

Pennsylvania has this wacky system where they issue bills of credit (on which interest is paid and which is secured by land) for use as money to its citizens and they circulate and spend it and raise money that way. (V.ii.a.11) #WealthOfTweets #SmithTweets

This worked out OK for Pennsylvania, but the other American colonies that tried to do this without Pennsylvania's "moderation" created "much more disorder than conveniency." (V.ii.a.11) #WealthOfTweets #SmithTweets

#TLDR, Smith says that profits from stock and credit are not appropriate revenues for any kind of great nation. (V.ii.a.12) #WealthOfTweets #SmithTweets

But land! Surely owning land is a great way for governments to ensure they have the money they need, right? Rent is a monopoly price and all that. Plus, having lots of land is impressive and stuff. (V.ii.a.13) #WealthOfTweets #SmithTweets

OK, MAYBE, says Smith, unless you're a modern state and you're going to war. Since not everyone is a soldier any more, it's too expensive to wage war on the rent of public land alone. (V.ii.a.16) #WealthOfTweets #SmithTweets

Now Smith is sort of going to talk about land tax revenue but not land tax yet (spoilers, Dr. Smith!). (V.ii.a.16) #WealthOfTweets #SmithTweets

The produce of crown lands are just not high enough to yield the kind of income that a modern nation needs. Those lands aren't productive enough. (V.ii.a.17–18) #WealthOfTweets #SmithTweets

There's a misconception, says Smith, that even though crown lands aren't super productive, at least they don't cost anything. Wrong! The revenue they COULD generate if they were distributed to private people is a huge missed opportunity. (V.ii.a.19) #WealthOfTweets #SmithTweets

Smith isn't against publicly owned land, he just thinks it oughta be considered an expense, not a source of revenue. (V.ii.a.20) #WeathOfTweets #SmithTweets

And so, having dismissed stock and lands as appropriate sources of revenue for a great nation, Smith is ready to move on to taxes! And that's what we'll tackle tomorrow. #TheWaitIsAlmostOver (V.ii.a.21) #WealthOfTweets #SmithTweets

27 Feb • 27 tweets • adamsmithworks/status/1365694263737135113

It's here! It's finally here! The (first) day #AdamSmith talks about taxes in #WealthOfNations!

We're assuming there's a group for whom this is exciting. We, the SmithTweeters, may not count ourselves among them. But let's go anyway! (V.ii.b) #WealthOfTweets #SmithTweets

Remember how Smith divided private revenue into rent, profit, and wages in the first book? Now he's gonna divide up taxes. Smith loves a good subdivision. Taxes can fall on:
1. Rent
2. Profits
3. Wages
4. All three indifferently. (V.ii.b.1) #WealthOfTweets #SmithTweets

He'll be dividing up three of these into further subdivisions, obvs. (V.ii.b.1) #WealthOfTweets #SmithTweets

But before he gets into those subdivisions...a list of maxims! (V.ii.b.2) #WealthOfTweets #SmithTweetsTaxes in general should:
1. Be in proportion to ability to pay.
2. Be certain, not arbitrary.
3. Be charged when it's easy to pay.
4. Not cost people more than necessary.Seems reasonable. (V.ii.b.3–7) #WealthOfTweets #SmithTweets 

So! Taxes on rent. (V.ii.c) #WealthOfTweets #SmithTweets

Taxes on rent can be set for a location, or they can vary with the improvement and productivity of (and therefore the rent paid on) the land. (V.ii.c.1) #WealthOfTweets #SmithTweets

Britain had a land tax set way-back-when by district that hadn't been updated since its imposition. This has worked out pretty well, says Smith! It's definitely certain and it's charged when people can conveniently pay it. (V.ii.c.2) #WealthOfTweets

Smith admits this could have been worse if the rent of the lands or the value of silver had varied dramatically (which they hadn't) things could have worked out otherwise. But they didn't. (V.ii.c.3–6) #WealthOfTweets #SmithTweets

Some places try to assess the rent of land in order to set the tax based on what's actually paid. Like Venice. #VeniceYouSoCrazy

The physiocrats think this is a great idea. Smith, not so much. (V.ii.c.7–9) #WealthOfTweets #SmithTweets

I mean, sure, says Smith. It would be more EQUAL (by which he means allocated based on ability to pay), but it would not be so certain. And a lot of inequality is better than a little uncertainty. Plus, those assessments. So expensive! (V.ii.b.4, c.9) #WealthOfTweets #SmithTweets

Smith proposes a complicated-sounding system of lease registries for preventing uncertainty and moderating the expense of tax assessment. (V.ii.c.10–17) #WealthOfTweets #SmithTweets

Even if the complicated assessment scheme could work, a tax on the rent of land would discourage improvement of the land by reducing the payoff for improving it. That's bad. (V.ii.c.18) #WealthOfTweets #SmithTweets

But wait! By another somewhat complicated system of administration, maybe the land-tax could ENcourage rather than DIScourage the improvement of the land. That would be good! (V.ii.c.18–19) #WealthOfTweets #SmithTweets

If you could pull this off, says Smith, boy would it be great. It should be a fundamental law of the commonwealth if you can pull this off. (V.ii.c.20) #WealthOfTweets #SmithTweets

Instead of the simple and obvious system of getting landlords and tenants to register leases together with payments for snitching if one side or the other cheats...(V.ii.c.21) #WealthOfTweets #SmithTweets

...and amendments to make sure that you're encouraging improvement (so simple! so obvious!), some countries do SURVEYS. #Numpties (V.ii.c.21–23) #WealthOfTweets #SmithTweets

(Yes, we, the SmithTweeters, also see the word "Doomsday-book" there, and no, we were not just going to ignore it. But it's not as interesting as it sounds. Doom used to be less doomy. (V.ii.c.21)) #WealthOfTweets #SmithTweets

Some places also charge different taxes to churches and nobility than the common people. It's an option, but Smith would probably like those who consider it to remember the four maxims of taxation. (V.ii.c.24–25) #WealthOfTweets #SmithTweets

Anyway, even if the tax is perfectly equal when you set it, it'll become unequal over time. Unless you go to a lot of work and bother and impose a burden on those being taxed. It's probably, says Smith, more trouble than it's worth. (V.ii.c.26–27) #WealthOfTweets #SmithTweets

Another way to tax rent is to tax the produce of land. Because rent is a monopoly price and landlords just collect all the value they can beyond the wages and profit generated, a tax on the produce of the land will be paid by the landlord. (V.ii.d.1) #WealthOfTWeets #SmithTweets

Church tithes are an example of this kind of "tax". They look equal, says Smith, but they're not because the rent of the land is not set by its productivity. (V.ii.d.2) #WealthOfTweets #SmithTweets

In addition to being unequal, the tithe discourages both improvement of the land and production by the farmer. (V.ii.d.3) #WealthOfTweets #SmithTweets

Asian governments tax the land according to its produce rather than its rent. When it's the government doing it, Smith sees some advantages: it creates an incentive to make sure roads, canals, etc. are kept up and the land is improved. (V.ii.d.5) #WealthOfTweets #SmithTweets

If the government provides the public works that make the whole country productive, its tax on produce will be more lucrative. Churches don't control enough of an area to have these good incentives from the tithe. (V.ii.d.5) #WealthOfTweets #SmithTweets

A tax on produce might also be collected in kind, but this leads to corruption unless it can be overseen by the person the tax is being paid to. (Corrupt tax officials were a real problem at the time, judging by this chapter.) (V.ii.d.7) #WealthOfTweets #SmithTweets

I mean, we know @turbotax @HRBlock @IRSnews @NTU @wwwojtekk and @jmhorp have been waiting for this like Smithtweeters wait for Girl Scout Cookies....

28 Feb • 22 tweets • adamsmithworks/status/1366030801259925505

Ready for more of #AdamSmith's thoughts on taxes from #WealthOfNations? Sure you are! (V.ii.e–h) #WealthOfTweets #SmithTweets

Taxes upon rent can also fall upon the rent of houses! House rent isn't like regular land-rent, though. It's split into two parts: the building-rent and the ground-rent. (V.ii.e.1) #WealthOfTweets #SmithTweets

Building-rent is really just the profit of the person who builds the building. Like all profit it's regulated by supply, demand, and the interest of money. (V.ii.e.2) #WealthOfTweets #SmithTweets

"Ground-rent is more like regular rent, but is also affected by how much people want to live somewhere. Ground-rent in cities, especially the capital, is higher than the country where there's lots of land available. (V.ii.e.3) #WealthOfTweets #SmithTweets

Taxes on house-rent don't affect building-rent. Builders are going to get their profit or they're going to stop building houses. They also don't fall entirely on ground-rent. They're paid by the renters. (V.ii.e.4) #WealthOfTweets #SmithTweets

Renters have a budget. Tax on rent means their budget will pay for a more modest home. Smith says this means everyone gets a worse home than they could otherwise afford, but not as much worse as if the tax applied only to them. (V.ii.e.5) #WealthOfTweets #SmithTweets

Some of the tax on house-rent is also paid by the owner of the ground-rent, but it's so hard to figure out how the burden will be split between the renters and the owners of ground-rent that not even Smith is gonna try. (V.ii.e.5) #WealthOfTweets #SmithTweets

That means taxes on house-rent are unequal. That's bad. (V.ii.e.6) #WealthOfTweets #SmithTweets

BUT, a tax on house-rents probably, says Smith, falls most heavily on the rich and that's good. The rich should contribute more to public revenue because they can afford it. (V.ii.e.6)#WealthOfTweets #SmithTweets

House-rent is also different from regular land rent because regular land rent is revenue from a productive resource, while house-rent is revenue from a consumption good. (V.ii.e.7) #WealthOfTweets #SmithTweets

House-rent is really more like a consumption tax. It falls equally on whatever sorts of revenue inhabitants of the house use to pay for it.(Smith will have lots to say about consumption taxes later. For now, we talk houses. Probably.) (V.ii.e.7) #WealthOfTweets #SmithTweets

That's how the burden of taxes falls on the people involved in housing. So how is the tax set? Smith has thoughts. (V.ii.e.8–20) #WealthOfTweets #SmithTweets

First off, uninhabited houses shouldn't be charged house-rent. Empty houses don't create revenue, and revenue is what should be taxed. (V.ii.e.8) #WealthOfTweets #SmithTweets

House-rent should NOT be based on the cost of the building. The revenue that houses generate is paid as the housing is used, not in proportion to the cost of building (building and improvement expenses could be spread out over generations). (V.ii.e.8) #WealthOfTweets #SmithTweets

Ground-rents are unusually well-suited to taxation.
1. The owner is a monopolist.
2. Ground-rent depends on the prosperity/administration of the city and should support it.
3. Taxing ground-rents shouldn't increase house-rents. (V.ii.e.10–11) #WealthOfTweets #SmithTweets

In spite of that, Smith can't find an example of a country trying to tax ground-rents. (V.ii.e.12) #WealthOfTweets #SmithTweets

Assessing the value of homes is complicated. England has tried to base it on the number of hearths in the house or on the number of windows. Letting someone into your house to count hearths is onerous and oppressive. So that's out. (V.ii.e.16) #WealthOfTweets #SmithTweets

Counting windows is better (you can do it from the street), but it is unequal because of the differences in the ground-rent. A country house with 20 windows might be let for less than a city-house with ten. (V.ii.e.18–19) #WealthOfTweets #SmithTweets

So it's hard to set these taxes well. But regardless how they're set, they lower the rent of houses, says Smith (renters have a budget and lump taxes and rent together). (V.ii.e.20) #WealthOfTweets #SmithTweets

The fact that the rent of houses has risen over time in spite of the taxes is more proof of British prosperity. (V.ii.e.20) #WealthOfTweets #SmithTweets

And that's all Smith has to say about taxes on rent! Come back tomorrow for the exciting world of taxes on profit! #WealthOfTweets #SmithTweets

1 Mar • 28 tweets • adamsmithworks/status/1366395636183146504

#AdamSmith's thoughts on taxation: They are numerous, and outlined in detail in #WealthOfNations. Today we'll be looking at taxes on profit! (V.ii.f–g) #WealthOfTweets #SmithTweets

Smith starts out by reminding us that profits are divided into the part that pays the interest and the part over and above that which pays the interest. You can't tax the over-and-above part directly. (V.ii.f.1–2) #WealthOfTweets #SmithTweets

Over-and-above paying the interest might sound like it's extra money, but it's not! It compensates the owner of stock for things like risk and trouble. If you tax away this profit, the owner of the stock won't employ it productively. (V.ii.f.2) #WealthOfTweets #SmithTweets

So, if profit is taxed, the owners of stock have to either increase their rate of profit to cover the tax or pay less interest. (V.ii.f.2) #WealthOfTweets #SmithTweets

If the owner of stock raises their rate of profit to cover the tax, the money they collect becomes part of their stock. They expect to earn a profit for advancing the tax to the government. But they're not going to pay it in the end. (V.ii.f.2) #WealthOfTweets #SmithTweets

If the stock is used in manufacturing, the added money for the tax will come from increased prices for consumers. If the stock is used in agriculture, the added money for the tax will come from lower rent paid to landlords. (V.ii.f.2) #WealthOfTweets #SmithTweets

And the increased price/reduced rent will be by more than whatever the tax costs so that the owner of the stock can earn a profit on the money they advance to the tax- collectors on behalf of whoever finally pays it. (V.ii.f.2) #WealthOfTweets #SmithTweets

If the owner of stock covers the tax by paying less in interest, that means they can borrow less and employ less stock. This means less stock is put to productive use. That's bad. (V.ii.f.2) #WealthOfTweets #SmithTweets

So we guess what he's saying here is that it's not like taxing profits is any simpler than taxing rents. (V.ii.f.2) #WealthOfTweets #SmithTweets

What about just taxing the interest? Nah, says Smith. Interest rates are set by the amount of money available and the demand for that money. Taxing it doesn't change those things, so it won't change the rate of interest. (V.ii.f.3) #WealthOfTweets #SmithTweets

Money and land are both set. Land-rent is a fine subject for taxation. Why not interest? Two reasons:
1. Stock is easier to hide than land.
2. Stock moves, land doesn't. You can chase it away and make everyone poorer. (That's bad.) (V.ii.f.4–6) #WealthOfTweets #SmithTweets

So if the amount of money is set, and the amount of stock is set, and the rate of profit is set, any tax on profits is going to, for realsie reals, be paid by consumers and landlords. (V.ii.f.3–6) #WealthOfTweets #SmithTweets

This all makes taxes on profit hard to set fairly. Countries that did it sort of guesstimated and had to be happy with that...unless they were small and weird enough to have citizens who honestly commit to pay a tax on their profits. (V.ii.f.7– 14) #WealthOfTweets #SmithTweets

Some countries try to tax the profits of a particular branch of trade. But—for realsie reals! Smith has told you so!—it's gonna be paid by consumers. (V.ii.g.1–4) #WealthOfTweets #SmithTweets

If you thought Smith had a lot of shade to throw at France before we got to taxes...well, you ain't seen nothin' yet. (V.ii.g.5–7) #WealthOfTweets #SmithTweets

The taille is a French tax on profits only charged on people so poor and politically unpowerful that they're unable to avoid it. Its assessment is tres onerous, its cost is oppressively high, and its level is aggressively arbitrary. (V.ii.g.5–7) #WealthOfTweets #SmithTweets

The nobility are taxed much more lightly and don't help the common people because they generally despise them. (We can't see how this might possibly go wrong in a few years.) (V.ii.g.5–7) #WealthOfTweets #SmithTweets

When taxes on profits affect specific manufactured goods, the manufacturer will reduce the number of goods they bring to market to ensure their profits are high enough to cover the tax. Which passes it on to consumers. FOR👏REALSIE👏REALS👏 (V.ii.g.8) #WealthOfTweets #SmithTweets

When taxes on profits affect specific agricultural goods, the farmer produces what the land will produce, still collects profit and pays wages, but reduces rent paid. Which passes the tax onto landlords. FOR👏REALSIE👏REALS👏 (V.ii.g.8) #WealthOfTweets #SmithTweets

If the owners of stock can't pass the costs onto the consumers or the landlord, they'll get out of any business that can't support a reasonable profit, and the government will not collect any tax. (V.ii.g.8) #WealthOfTweets #SmithTweets

The taille is set based on the stock that farmers employ. So farmers use "the meanest and most wretched instruments of husbandry" available to them. (V.ii.g.9) #WealthOfTweets #SmithTweets

The farmers subject to the taille in this way feign poverty and fool tax officials they don't trust and a state they don't feel represents their interests. Again, we have NO IDEA how this could possibly go wrong. 😬 (V.ii.g.9) #WealthOfTweets #SmithTweets

We are not jazzed about the way Smith talks about enslaved workers here. We wish that he took every opportunity available to him to denounce slavery. It's not like the guy didn't take every opportunity to digress on other subjects. (V.ii.g.10–11) #WealthOfTweets #SmithTweets

But he doesn't here. He just discusses poll-taxes, which were taxes charged per-head of enslaved or bonded worker. He does acknowledge that these taxes are despised when applied to freemen because of its association with slavery. (V.ii.g.10–11) #WealthOfTweets #SmithTweets

He even says that the fact that workers have to pay a poll-tax on themselves should be seen as evidence of their freedom. No slave has to pay taxes....like. It's better than nothing. We guess. But we wish it were more... (V.ii.g.10–11) #WealthOfTweets #SmithTweets

Taxes on servants are NOT like poll-taxes. Poll-taxes apply to workers who produce things, while servants provide...well, service. So taxes on servants is a tax on consumption, not on production. (V.ii.g.12) #WealthOfTweets #SmithTweets

There's nothing special about taxing profits in particular industries that makes it more likely to affect the rate of interest than taxes on profit generally. (V.ii.g.13) #WealthOfTweets #SmithTweets

Tune in tomorrow for... AN APPENDIX! Yes, really. We'll see you then! #WealthOfTweets #SmithTweets

2 Mar • 22 tweets • adamsmithworks/status/1366750928326565891

Having said what he had to say about taxes on rent and profits, #AdamSmith pauses, now, for an appendix to handle the taxation of the land and stock that generate rent and profit. (V.ii.h) #WealthOfTweets #SmithTweets

Dear readers, we hope you are tax nerds. (We still and forever ❤ you, nerds.) @turbotax @IRSnews @HRBlock (V.ii.h) #WealthOfTweets #SmithTweets

Taxing the revenue generated by land or stock doesn't diminish the ability of that land or stock to generate revenue. But taxing away a portion of the revenue- generating property does. (V.ii.h.1) #WealthOfTweets #SmithTweets

This taxation generally happens when property is changing hands. Especially where the sale is conspicuous, as in the case of lands and houses or when someone dies. In these cases, the transaction can be taxed directly. (V.ii.h.2) #WealthOfTweets #SmithTweets

Here are some ways that you can tax these things:
1. Directly in the case of conspicuous transactions
2. Stamp duties (papers for transactions must be stamped to be valid)
3. Duties for a required public record of the transfer (V.ii.h.1–2) #WealthOfTweets #SmithTweets

Sometimes the tax varies based on the relationship between the deceased person and their heirs. (V.ii.h.4) #WealthOfTweets #SmithTweets

This makes sense, says Smith: the death of a father whose children live with him makes them poorer. But inheritance by adult children with their own households increases their fortune. (V.ii.h.4) #WealthOfTweets #SmithTweets

Land transfer taxes were a major source of revenue for the government under feudal law, but they were also onerous. (V.ii.h.5–6) #WealthOfTweets #SmithTweets

In Britain, stamp duties in Smith's time depended not on the value of the property being transferred but on the type of deed being written (this would make them unequal). Britain didn't have registration duties. (V.ii.h.9) #WealthOfTweets #SmithTweets

Even though stamp-duties and registration duties are new, they're pretty universal. Why? "There is no art which one government sooner learns of another than that of draining money from the pockets of the people." #SmithSnark (V.ii.h.12) #WealthOfTweets #SmithTweets

(That might be our favorite #SmithSnark)"There is no art which one government sooner learns of another than that of draining money from the pockets of the people." #SmithSnark (V.ii.h.12)

There's no way around inheritance taxes falling on the heir. But Smith thinks it's worth asking on whom the burden of the tax for other property transfers falls. (V.ii.h.13) #WealthOfTweets #SmithTweets

People selling property almost always *have* to sell, while buyers rarely *have* to buy. It's easy to imagine that the burden of the tax falls on the relatively privileged seller, which makes these taxes crueller and more oppressive. (V.ii.h.13) #WealthOfTweets #SmithTweets

[We, the SmithTweeters, are looking in vain for the heartless, greed-driven, ruthless capitalist Adam Smith that we've heard so much about.] (V.ii.h.13) #WealthOfTweets #SmithTweets

Taxes on transferred property enrich the government at the expense of the people who would otherwise use that property to make the country richer. They're an "unthrifty" tax. (V.ii.h.14) #WealthOfTweets #SmithTweets

Also, taxes on property transfers are unequal...though they do meet the other three maxims of good taxation. (V.ii.h.15) #WealthOfTweets #SmithTweets

Duties on registration are badly abused in France. The officers who administer them extort the farmers. It doesn't have to be this way with these taxes, but in France it was. (V.ii.h.16) #WealthOfTweets #SmithTweets

Not all duties of registration (even when they're not French and corrupt) are created equal.Registered mortgages are good for everyone.Forcing the registration of every transfer of property would be bad for everyone. (V.ii.h.17) #WealthOfTweets #SmithTweets

The credit and the security of private individuals ought never to be trusted to the "probity and religion of the inferior officers of revenue". #SmithSnark (V.ii.h.17) #WealthOfTweets #SmithTweets

Even public harm, cruelty and oppression, the ruin of private investors, and the corruption of officers aren't likely to stop the government from multiplying these sorts of taxes, though, if it depends on them for revenue. (V.ii.h.13) #WealthOfTweets #SmithTweets

We, the SmithTweeters, are starting to think that Adam Smith was not an especially big fan of these sorts of taxes. (V.ii.h.13) #WealthOfTweets #SmithTweets

There are a bunch of things called stamp-duties that are not the types of stamp-duties Adam Smith has been talking about today. They are, properly, taxes on consumption. We'll get to those tomorrow! See you then! (V.ii.h.14) #WealthOfTweets #SmithTweets

3 Mar • 24 tweets • adamsmithworks/status/1367124016323059713

#AdamSmith, #WealthOfNations, and #Taxes. There's a lot here. Will it ever end? The only way to find out is to keep reading!

Today: taxes on wages and head taxes. (V.ii.i–j) #WealthOfTweets #SmithTweets

Spoiler alert: #AdamSmith did not like "absurd and destructive" taxes on wages. [We, the SmithTweeters, are taxed not on our wages, but per tweet. Still waiting for Smith to get to tweet taxes.] (V.ii.i) #WealthOfTweets #SmithTweets

Wages are set by the demand for labor and the cost of living. Taxes can therefore only raise what laborers must charge hourly. They can't go without necessities. They're necessities. (V.ii.i.1) #WealthOfTweets #SmithTweets

It's worse than that, though. The cost of living depends on the cost of labor. So when the cost of labor increases to cover the tax, it also increases the cost of living. So the cost of labor has to go up *more* than the tax. (V.ii.i.1) #WealthOfTweets #SmithTweets

It gets worse again. Laborers are paid by stock of their employers. So employers need to earn a profit on the amount the tax adds to the cost of labor, or they'll use that stock on something else. (V.ii.i.2) #WealthOfTweets #SmithTweets

It gets worse again. If employers are manufacturers, the final tax is paid by consumers. If employers are farmers, the final tax is paid by landlords, who are less likely to improve their land. Both of these make everyone poorer. (V.ii.i.2) #WealthOfTweets #SmithTweets 

We, the SmithTweeters, have got to admit that that sounds pretty bad—oh gosh we just kept reading and it gets worse again. (V.ii.i.3) #WealthOfTweets #SmithTweets

Sometimes taxes fail to increase the wages of labor sufficiently to cover the tax because what happens instead is the demand for labor falls➡industry declines➡the wealth of the country declines. (V.ii.i.3)#WealthOfTweets #SmithTweets http://www.simpsonsworld.com/

"The demand for labor falls" doesn't sound so bad today. But at the time Smith's writing, the labor supply "adjusts" when the working poor are unable to feed their children, who die instead of growing up to become laborers. THAT'S BAD. (V.ii.i.3) #WealthOfTweets #SmithTweets

So, like we were saying. "Absurd and destructive" are taxes on the wages of labor. But they were (and are!) also common. For instance, the French taille, which Smith has been (justifably) dunking on through this chapter, is such a tax. (V.ii.i.5) #WealthOfTweets #SmithTweets

There are two types of taxes on income upon which #AdamSmith does not glower so :taxes on "recompence of ingenious artists and men of the liberal professions" and upon emoluments of offices. (V.ii.i.6–7) #WealthOfTweets #SmithTweets

Taxes on the income of people in the liberal professions will either raise their income so that they can pay the tax, or some of them will have to leave their profession until wages increase enough for those who remain to pay the tax. (V.ii.i.6) #WealthOfTweets #SmithTweets

Taxes on income of people in public office are not only not harmful (the number of people in office and what they're paid have nothing to do with supply&demand) but popular. Even England taxed the salaries of offices (but no other wages). (V.ii.i.7) #WealthOfTweets #SmithTweets

We, the SmithTweeters, may have misled you when we said we'd get to taxes on consumption today. We are sorry. But let's tackle discussion of capitation taxes. We're here anyway. (V.ii.j) #WealthOfTweets #SmithTweets

Capitations taxes are one of two sorts of taxes that fall equally upon all forms of revenue. (The other is consumption taxes. We are, again, sorry.) (V.ii.j.1) #WealthOfTweets #SmithTweets

Capitation taxes are a head tax. (There's probably a decapitation tax joke here, but we can't find it.) They can be a set amount, based on rank, or based on wealth. (V.ii.j.2– 4) #WealthOfTweets #SmithTweets

#AdamSmith: Not a fan of wealth taxes. A tax based on fortune or revenue will be"altogether arbitrary". Fortunes change constantly! (V.ii.j.2) #WealthOfTweets #SmithTweets

At the end of the day the assessment of a fortune will depend more on the "good or bad humour of his assessors" than on his wealth. (V.ii.j.2) #WealthOfTweets #SmithTweets

A head tax could also be set based on the rank of each contributor. This is certainly unequal (not every, we don't know, earl or something, has the same wealth or income), but at least it's certain. (V.ii.j.3) #WealthOfTweets #SmithTweets

^This would also apply to head tax of a single amount for everyone in societies where rank isn't a thing. (V.ii.j.3) #WealthOfTweets #SmithTweets

Try to make a head tax equal➡it becomes arbitrary. Try to make a head tax certain➡it must be unequal. So maybe at least make it a light tax? It will still be unpopular, but at least not unbearable. (V.ii.j.4) #WealthOfTweets #SmithTweets

England has had poll taxes. But can you guess who not only had poll taxes but has a poll tax and it's especially oppressive to the poor masses? It's France. Again. Are you keeping score? We, the SmithTweeters, feel like we should be. (V.ii.j.5–7) #WealthOfTweets #SmithTweets

Capitation taxes charged to the working poor are just taxes on the wages of labor, so they're ᴛᴇʀʀɪʙʟᴇ. But they're cheap to administer and raise money so they're popular with governments that don't care much for the poor. (V.ii.j.8–9) #WealthOfTweets #SmithTweets

So that's our quick and dirty overview of #AdamSmith on capitation taxes. Tomorrow is consumption taxes. WE PROMISE. It's literally the next paragraph. See you then! (V.ii.k) #WealthOfTweets #SmithTweets

4 Mar • 22 tweets • adamsmithworks/status/1367476663928381448

#Taxes! He's still going! Today, at long last, we come toconsumption taxes!We, the SmithTweeters, realize we've really built this up. (V.ii.k) #WealthOfTweets #SmithTweets

But! There's a lot of good stuff in here! So once more into the breach, dear Smithketeers...Smith divides consumable commodities into necessaries and luxuries. (V.ii.k.2) #WealthOfTweets #SmithTweets

Smith includes in necessaries not just what's needed for physical survival, but what's required by common decency in a given society at a given time. He uses the examples of linen shirts and leather shoes for British working class men. (V.ii.k.3–4) #WealthOfTweets #SmithTweets

The best way to tell if something is a necessary commodity is whether increasing its price increases the wages of labor or just changes consumption patterns. (V.ii.k.3–4) #WealthOfTweets #SmithTweets

Because taxes on necessary commodities will raise the wages of labor to ensure workers have what they need in a given economy, taxing them has the same effect as taxing the wages of labor. That's bad. (V.ii.k.5) #WealthOfTweets #SmithTweets

By "luxuries", Smith doesn't mean goods only the rich can afford. He means commodities that aren't necessaries. Goods universally consumed by the poor can still count as luxuries. Some examples include tobacco, sugar, and—hold up. Tea‽ (V.ii.k.6) #WealthOfTweets #SmithTweets

We really weren't ready for that.

A quick break while we brew a recovery pot. (V.ii.k.6) #WealthOfTweets #SmithTweets

[We, the SmithTweeters, assure you that if the price of TEA goes up, our per-tweet rate will go up right along with it!] (V.ii.k.6) #WealthOfTweets #SmithTweets

Ahem.We look askance on Smith's claim that increasing the price of luxuries will make the poor better off by making them more frugal. (V.ii.k.7) #WealthOfTweets #SmithTweets

We straight-up SIDE EYE the suggestion that disorderly families who can't moderate their consumption and let their children starve instead wouldn't add "useful" people to the population anyway. (V.ii.k.7) #WealthOfTweets #SmithTweets

It's a reminder of the high stakes of increasing wealth in the 18thC, but it's 𝙧𝙖𝙩𝙝𝙚𝙧 𝙖𝙩𝙤𝙙𝙙𝙨 with Smith's laudable idea from way back in Book I that we're born with equal potential. (V.ii.k.7) #WealthOfTweets #SmithTweets

Even middle- and high-income people should oppose taxes on necessities, says Smith. They're better able to weather the increase in the cost of living, but taxes on necessities, like takes on wages, make everyone poorer. (V.ii.k.9) #WealthOfTweets #SmithTweets

Taxing luxuries, though—by definition—doesn't raise the overall cost of living. They just make the luxuries taxed more expensive. (V.ii.k.9) #WealthOfTweets #SmithTweetsBritain may not have taxed wages, but it did tax necessities. Specifically:
- Salt (need it to live)
- Leather (need it for shoes)
- Soap (need it to wash linen shirts)
- Candles (need it to work at night, esp in UK winters) (V.ii.k.10–11) #WealthOfTweets #SmithTweets

Smith thinks fuel might also qualify in the winter, and suggests that if a bounty could ever be reasonable, a bounty to get coal to places would qualify.Britain, meanwhile, taxed that kind of thing. (V.ii.k.12) #WealthOfTweets #SmithTweets

5 Mar • 26 tweets • adamsmithworks/status/1367841923701080066

Welcome back to consumption taxes! #AdamSmith has still got a lot to say on this in #WealthOfNations. Let's jump right back in. (V.ii.k.) #WealthOfTweets #SmithTweets

Exise duties are a tax that falls mostly on goods produced at home for consumption at home—generally a few goods that are widely used. These are mostly luxuries, except for the salt, leather, soap, candles thing. And green glass. (V.ii.k.19) #WealthOfTweets #SmithTweets

Fellow Smithsters, the green glass thing threw us for a loop. Is green glass a necessity? Why wasn't it mentioned earlier if so? Is the glass green in color? It a technical term? Send us your theories!(V.ii.k.19) #WealthOfTweets #SmithTweets

Customs duties are suuuuuper old. Time immemorial old. (Or maybe just from feudal England. It's less clear than you'd think from the use of "time immemorial".) (V.ii.k.20) #WealthOfTweets #SmithTweets

Back in the feudal days, the nobility looked down upon merchants and the domestic population looked down upon foreign goods. Which...kind of sounds like what Smith has been describing in his own time but OK. #BackInTheDay (V.ii.k.20–21) #WealthOfTweets #SmithTweets

The prejudice against foreign goods was the original reason for higher customs duties, but higher duties persist because of the spirit of monopoly and mercantile system. Perhaps you've heard Smith mention this before. #OverAndOver (V.ii.k.21) #WealthOfTweets #SmithTweets

Setting aside the treatment of foreign goods, customs were...customarily? applied to goods equally in an attempt to be fair. There were three kinds of ancient customs:
1. On wool and leather,
2. On wine,
3. On everything else. (V.ii.k.23) https://en.wikipedia.org/wiki/Celestial_Emporium_of_Benevolent_Knowledge #WealthOfTweets #SmithTweets

You might think that Smith is bringing up the mercantile system again because he hates it so much and...well, you might be right. But it actually makes sense to do it here. Customs duties are taxes, but they're bad at being taxes. (V.ii.k.23–29) #WealthOfTweets #SmithTweets

Because customs duties are set to try to achieve a certain balance of trade, they fail at raising revenue. What might be a useful public policy tool gets hijacked and turned against its most plausibly useful purpose: revenue generation. (V.ii.k.23–29) #WealthOfTweets #SmithTweets

Instead of raising revenue, customs duties foster monopoly, encourage smuggling, and discourage consumption. All three of these things make them expensive instead of lucrative. (V.ii.k.23–29) #WealthOfTweets #SmithTweets

Okay. Look. Smith mentions this thing called "The Book of Rates" which is extremely comprehensive and enumerates all kinds of customs duties. We confess, we braced ourselves. (V.ii.k.30) #WealthOfTweets #SmithTweets

But then he doesn't quote it. Or discuss it for 65 pages. There is no Digression on the Book of Rates! And now we think we might be disappointed? Maybe? (V.ii.k.30) #WealthOfTweets #SmithTweets

Smith disagrees that the best way to make sure everyone contributes as they should to the public revenue is to tax everything. He thinks you could achieve this goal by taxing a few things well. This could be done via customs duties. (V.ii.k.31–32) #WealthOfTweets #SmithTweets

He suggests that imported common luxuries (Yes, including tea. We, the SmithTweeters, feel attacked.) are a good target. They already provide a good deal of revenue. How could their taxation be improved? (V.ii.k.32–41) #WealthOfTweets #SmithTweets

The two main things that reduce the revenue from customs duties are high prices that reduce consumption and smuggling. Lowering the tax rate can address both of these problems. (V.ii.k.32–41) #WealthOfTweets

Public warehouses could be used to combat smuggling, but only if far fewer goods were charged duties (which is what Smith is suggesting). (V.ii.k.32–41) #WealthOfTweets

Customs policies that aimed to raise revenue and not to pursue wrong-headed mercantile goals might, thinks Smith, raise as much revenue as all the customs duties Britain was imposing at the time while otherwise freeing trade. (V.ii.k.32–41) #WealthOfTweets #SmithTweets

But obviously this is v unpopular with proponents of the mercantile system, so politically it ain't gonna happen. (V.ii.k.40) #WealthOfTweets #SmithTweets

Taxes on cheaper luxuries fall pretty equally upon all people in proportion to their consumption of those luxuries, especially because the rich are paying for the consumption of their servants as well. (V.ii.k.42) #WealthOfTweets #SmithTweets

We should pay special attention to the taxes paid by the working poor and others below the "middling rank" of people. (V.ii.k.43) #WealthOfTweets #SmithTweets

There are so many of the working poor that their combined spending is consequential. Almost all the capital in any country is spent on supporting the wages of their labor. (V.ii.k.43) #WealthOfTweets #SmithTweets

The combined profit from the small capitals of the working poor is significant. Many of them own a little land, so even their rents matter. IOW, they've all got a little wealth. But there's a lot of them, so it's a lotta wealth. (V.ii.k.43) #WealthOfTweets #SmithTweets

If the point of a tax is to raise revenue for the state, therefore, it should not overlook the poor as a source of revenue, but try to affect all ranks of people indifferently. (V.ii.k.43) #WealthOfTweets #SmithTweets

Smith isn't saying that's what you should do, he's just saying it'd raise a lot of cash. (V.ii.k.43) #WealthOfTweets #SmithTweets

This isn't exactly gripping, folks, valuable as it may be. Let's take a break and regroup tomorrow. With more tea. #WealthOfTweets #SmithTweets

This right here, guys? *This* is how you get a job as Commissioner of His Majesty's Customs at Edinburgh.• • •

6 Mar • 19 tweets • adamsmithworks/status/1368226419403329542

Today we will finally conclude #AdamSmith's thoughts on consumption taxes in #WealthOfNations.

You may be inclined not to believe us at this point, and we, the SmithTweeters, couldn't exactly blame you. But it's true! (V.ii.k.) #WealthOfTweets #SmithTweets

In fact, today will conclude all of Smith's thoughts on taxes, which we began discussing long ago, in days of yore. (V.ii.) #WealthOfTweets #SmithTweets

It's been so long since we started this journey that Smith takes a paragraph to remind us that any tax meant to raise money from the poor should be on their luxuries and not their necessities. (V.ii.k.44) #WealthOfTweets

#AdamSmith thinks that many different taxes related to the production of alcoholic beverages should be replaced with a higher tax on malt. He shows his work. With equations and everything. (V.ii.k.45–55) #WealthOfTweets #SmithTweets

Smith's most upset that alcohol taxes fall disproportionately on the poor. Rich estates brew their own beer and are exempt. Without that exemption (Smith says end it!), we might have avoided unjust taxation AND a malt tax rant. (V.ii.l.45,55) #WealthOfTweets #SmithTweets

Smith thinks luxury taxes should be set up so that they can be "altogether voluntary". They can be avoided by people who really don't want to pay them, but will be paid by most people because they're not too onerous. (V.ii.k.58) #WealthOfTweets #SmithTweets

Consumption taxes on luxuries are in line with three maxims of taxation (equality, certainty, convenience), but they "offend in every respect" against the maxim that says taxation shouldn't take more from the people than it needs to. (V.ii.k.60) #WealthOfTweets #SmithTweets

These taxes are expensive. They:
1. Need a lot of customs officials,
2. Obstruct and discourage certain branches of industry,
3. Bring ruin to smugglers, who could be good people, and
4. Require lots of visits from tax-gatherers. (V.ii.k.61–65) #WealthOfTweets #SmithTweets

Britain could be worse. (V.ii.k.66–68) #WealthOfTweets #SmithTweets France *is* worse. (V.ii.k.69–78) #WealthOfTweets #SmithTweets

Actually, we'll spend a little time on "tax farming" in France, because it's one of those things that we don't know how it could POSSIBLY go wrong in a few years for France. #FranceIsWorse #WhatCouldGoWrong (V.ii.k.73–75) #WealthOfTweets #SmithTweets

Tax farming was the practice of selling off the rights to tax a certain geographic area. It was bad. #FranceIsWorse #WhatCouldGoWrong (V.ii.k.73–75) #WealthOfTweets #SmithTweets

Tax farming created incentives for more onerous tax laws and stricter enforcement against the common people of France by making both tools for private enrichment in addition to public revenue. #FranceIsWorse #WhatCouldGoWrong (V.ii.k.73–75) #WealthOfTweets #SmithTweets

"Even a bad sovereign feels more compassion for his people than can ever be expected from the farmers of his revenue." #SmithSnark But that didn't motivate the Bourbons to stop it, apparently. #WhatCouldGoWrong (V.ii.k.73–75) #WealthOfTweets #SmithTweets

Tax farmers were also monopolists. #FranceIsWorse #WhatCouldGoWrong (V.ii.k.73–75) #WealthOfTweets #SmithTweets

Smith suggests that France might want to amend its tax policy so as not to vex the inferior ranks of people. #GoodAdvice (V.ii.k.77) #WealthOfTweets #SmithTweets

The oppressive, complicated, and cruel French tax system also raises far less than it should given France's population and resources. Smith doesn't think there's much to be said for it at all. We, the SmithTweeters, are inclined to agree. (V.ii.k.78) #WealthOfTweets #SmithTweets

Britain could be worse. (V.ii.k.79) #WealthOfTweets #SmithTweets

That's all the advice Smith has about raising revenue to support the proper duties of government. But sometimes, it's still not enough. That's why we have the next chapter, on public debt! See you tomorrow! (V.iii.) #WealthOfTweets #SmithTweets