The Sales Tax:
History of a Noxious Idea
Mason Gaffney
[2005]
" ... legislation is in almost every country
grossly the favourer of the rich against the poor. .. . . Thus in
England the land-tax at this moment produces half a million less
than it did a century ago, while the taxes on consumption have
experienced an addition of thirteen millions per annum during the
same period. This is an attempt, whether effectual or no, to throw
the burthen from the rich upon the poor, and as such is an example
of the spirit of legislation ..." (Wm. Godwin, "Inquiry
Concerning Political Injustice".)
Commercial-capitalist civilization has progressed in step with
people's success in fending off sales taxes in their various guises.
We might begin with The Enlightenment, late 18th Century, with its
epicenter in Versailles. At the core were the philosophes; at their
core were les economistes, or Physiocrats; and at their core was the
physician from whom they took their name, Francois Quesnay. One of
their main causes was to rid France of its internal sales taxes and
replace them with heavier taxes on property, especially land values.
Louis XVI named Quesnay's ally Turgot as his Finance Minister; Turgot
energetically set about implementing Physiocratic reforms, which they
called laissez-faire. The major landowners of France, the tax-exempt
nobles and clergy, led in resisting. When Turgot issued an edict
abolishing the corvee (forced labor), and substituting a land tax, The
Parlement de Paris, representing these landowners, issued a "Remonstrance"
against the Edict. It urged the King to maintain the rights of
property, and also to preserve "rights attached to the person and
those which derive from the prerogatives of birth and Estate."
The Remonstrance warns against "mixing all the orders of the
state together by subjecting them to the uniform yoke of a land tax."
This would cause "disorder and confusion." "It is
necessary that some command and others obey." That was the
mindset of sales tax champions then, plainly spoken; today they speak
riddles in soothing tones, but to the same end.
The weak-willed Louis caved in and dumped Turgot in 1776, opening a
chain of fiscal disasters that led to revolution in 1789, regicide,
Red Terror, White Terror, and a bourgeois reaction. When the dust
settled, nobles' lands were taxed, church lands were sold off,
internal sales taxes disappeared, and France's economy boomed along
Quesnay's lines. I will not defend Napoleon's imperialism, but
France's new economy was the base that made it possible. It spread the
new ideas all over Europe. After the Bourbon Restoration, France never
returned to her old fiscal ways. Quesnay might have learned by looking
back on England's Stuart line of monarchs. Charles I lost his head in
1649 after pushing sales taxes on his subjects; James II later lost
the throne for good while taking his fiscal advice from Thomas Hobbes
(Leviathan) who favored more sales taxes. The Glorious Revolutionists
of 1688 instead read John Locke, of whom Americans know. But then
after a bit came George II and Robert Walpole ("Every man has his
price"), 1721-40. Walpole survived until he tried to tax salt,
which brought him down at last. Quesnay might also have looked across
the Channel of his own time at George III, who lost the American
colonies after imposing taxes on their sugar and tea, along with a
battery of other imposts ("The Intolerable Acts" of Lord
Grenville).
How easily some people forget history. Recently, a Massachusetts
group invoked the Boston Tea Party to support their campaign against
property taxes, which they would replace with more sales taxation.
They were full of the spirit of Sam Adams Beer, perhaps, but not of
the man who rebelled against British sales taxes.
Quesnay might also have looked southwest to Spain. Adam Smith asked
why Spain, jump-started with gold pilfered from the New World, lagged
in economic progress. He laid it on the Spanish alcabala and cientos.
These were heavy sales taxes, often in cascade, that spared the
grandees from taxes on their lands while stifling Spanish commerce and
industry. Under Philip II with his sales taxes, Spain declared
national bankruptcy three times.
In the new U.S.A. the Federalists under Hamilton took charge and
began levying excise taxes. Things came to a boil in 1794 when farmers
of western Pennsylvania rebelled against a tax on their corn, which
they concentrated in whiskey to cut down on transportation costs.
Hamilton, who had Napoleonic ambitions, led Federal troops to put down
this "whisky rebellion" against his revenuers. The voters
thought him either ridiculous or dangerous, and when they found him
dominating the subsequent cabinet of John Adams, of which he was not
even a member, and leading the country into the depression of 1798,
they retired his party and installed Jefferson, whose Virginia dynasty
shaped the nation for the next 36 years. (President J.Q. Adams,
1825-29, had left the Federalists in 1807, supported Madison for
President, and had been Monroe's Sec. of State. Andrew Jackson,
1829-37, had allied with French Jean Lafitte to fight the redcoats at
New Orleans, and led Jefferson's old Party against the Whigs.)
These Virginians were heavily imbued with Physiocracy. Jefferson,
Madison and Monroe had all represented the colonies or the U.S.A. in
Paris, as had their friend Franklin, where they hobnobbed with
philosophers and picked up their ideas. They were pro-French, even as
France shifted from monarchy to Directory to Napoleon. It was Monroe
who had led the fight for the Commerce Clause, freeing internal trade
from excise taxes; Jefferson who wrote the Northwest Ordinance and
bought Louisiana, and brought the Physiocrats Gallatin and DuPont into
his circle, and welcomed Tom Paine back from France, and extended easy
credit to small buyers of western lands; and it was Madison, with all
his faults, who masterminded the Constitution, and then, in the War of
1812, used the Federal power to tax property, a power he had so
carefully circumscribed.
They got the new nation off to a flying start. Jefferson Davis had to
finance secession with excise taxes. The Confederate states, even
though fighting to survive, stood on their states' rights, and bucked
an attempted C.S.A. property tax. So Davis put a 10% tax on all farm
production, paid in kind -- a crushing burden on marginal farmers.
Winn Parish, LA, for example, home of Huey Long, in 1863 petitioned
General Grant to save them from this "oppression." The
C.S.A. repudiated its bonds and currency, and lost the war
catastrophically.
In Cuba, Spain imposed high excise taxes on farming and mining, and
tariffs favoring Spain. Spain incurred debts on the security of these
revenues from Cuba. Exiled rebel Jose Marti was in New York when Henry
George ran for Mayor, and we may assume absorbed some of the spirit.
He went home to lead a revolt, which he lost in 1895, but which led to
Spain's disastrous war with the U.S. and the loss of Cuba, Puerto
Rico, and The Philippines. In the peace treaty, the U.S. repudiated
these unjust debts -- a precedent to remember now that we are the
world's leading collection agency.
In Russia, Czar Nicholas II lost a war he could not finance from
excise taxes. In 1919 he was shot, with his entire family, and his
Romanov dynasty terminated.
Back in Indiana, long-time Senator Albert J. Beveridge, Progressive
Republican, was presidential timber. He pressed for a national sales
tax, suffered his first loss in 1922, and retired to meditate on his
error while writing a biography of Lincoln.
About the same time, President Warren Harding was calling for a
national sales tax (originally, to fund a Vet's Bonus). Harding's huge
majority from 1920 evaporated. Republicans considered dumping him for
a 2nd term, but he died in office. His guru Andrew Mellon remained,
however, urging taxing consumption. Mellon was Treasury Secretary
under (or was it over?) three presidents, 1921-31.
In 1932, Herbert Hoover proposed a national sales tax. By now his
Treasury Secretary was Ogden Mills, friend and ally of Professor
Richard T. Ely, another sales-taxer and professional anti-Georgist.
Mellon, Mills and Ely helped make Herbert Hoover the most beatable
president in U.S. history. Democrats ran against his memory for
several terms after that, and generally won on a pro-consumption
platform.
Anyone the Democrats nominated would have won in 1932. The fallback
nominee, Newton D. Baker, had a strong single tax background as the
protege and successor of Tom L. Johnson in Cleveland. Wm. Randolph
Hearst, of all people, swung the 1932 convention to FDR, whom he
disliked intensely, just to block Baker. We came that close to the
top, and haven't even known it! It may be relevant that Hearst, like
Mills, was a major California landowner. Hearst's garish castle at San
Simeon still sits amid 82,000 unused acres, including many miles of
prime coastline.
Hoover's ally in 1932 was Senator Joseph Robinson of Arkansas, leader
of the Senate Democrats. Huey Long of Louisiana soon invaded
Robinson's home state to humiliate him by winning a Senate seat for
unknown Hattie Carraway, breaking Robinson's power and making Long a
national power.
In 1930 Gandhi led his march to the sea in India, protesting a
British salt tax. In 1947 the Brits finally pulled out. They had
beaten Germany, Italy and Japan, but lost to unarmed Indians, led by a
half-naked pacifist and Luddite protesting a sales tax on salt. In
1948, Chiang Kai-shek and his Kuomintang were driven from China by
Communists under Mao Tse-tung. Chiang had tried to finance his
government with excise taxes and inflation. Once settled in Taiwan,
back to the wall, Chiang finally turned to land reform and land
taxation as taught by his early mentor, the sainted Sun Yat-sen. These
policies quickly turned Taiwan from a 3rd-World backwater into a
sparkling economic success story From 1960-65, the Government of South
Viet Nam doubled its sales tax from 10% to 20%, under prodding from
U.S. "experts." Thus they ruined their nation's commerce,
while big landowners were untaxed. The V.C. lined up against them and
won peasant support. The rest is history.
Back in the U.S.A., in 1980 Oregon Congressman Al Ullman, head of
U.S. House Committee on Ways and Means, started pressing for a Value
Added Tax (VAT) from his national eminence. Voters of his district
around Bend, in Harney County, promptly retired him, sacrificing all
the local pork that comes from having a powerful Congressman. Ullman
changed his position at the 11th hour but Republican Denny Smith hung
the sales tax albatross on Ullman, and won.
The catchword of 1988 was "austerity," meaning we should
tax consumption, to aid capital formation. Economist Larry Summers,
advising Dukakis, took this line. I doubt if his famous uncles, Paul
Samuelson and Kenneth Arrow, agreed, but all they have is Nobel
Laureates. Dukakis lost and disappeared, but Harvard's Overseers
picked Summers for President of their University, the richest in the
world. George Bush, contesting Dukakis, promised "no new taxes,"
which to some might mean no sales tax. Soon, VAT advocates rose to
high positions under Bush, so voters might have turned to Clinton in
1992 to keep people of that mindset out of power. That was, at any
rate, the outcome, good for two terms.
In 1989 the Japanese made Sosuke Uno Prime Minister. He introduced
the first Japanese sales tax. He also flaunted his mistress. The
housewives of Japan turned him out for both reasons, probably in the
order given. He lasted only 69 days, a record for brevity. Now,
visiting Japanese economists affect never to have heard of him.
In 1993 Canada, PM Brian Mulroney punched through a national sales
tax. Mulroney had held power for nine years, but in May, 1993, polls
showed him to be the most unpopular Prime Minister in Canadian
history. He resigned and gave the hot seat to young Kim Campbell of
Vancouver. Later in 1993 Ms. Campbell and her "Progressive
Conservative" Party lost so thoroughly that they went from the
governing party to a minority too small to be official any more.
Chretien won by vowing to get rid of GST. However, he hasn't actually
done so. Once this camel's nose gets under the tent, it's hard to
eject it.
In Feb. 1994 Japanese PM Morihiro Hosokawa announced an income tax
cut, to be replaced by raising the sales tax, which he called the "people's
welfare tax," from 3% to 7%, three years in the future. He and
U.S. Treasury Sec'y Lloyd Bentsen touted this as a tax cut. In a
stunning reversal, Hosokawa backed down in just a few days, to keep
the Socialists on board. They say he had been drunk with his high
approval ratings, and sneaky in his euphemisms. Any resemblance
between this episode and current events in the U.S.A. is purely
coincidental.
In Venezuela, 1989-1993, Carlos Andres Perez pushed privatization,
IMF, and VAT, a package known as "Latin neo-liberalism." He
also ran a deficit. The inflation rate was 45%. In 1994 Venezuela
elected Rafael Caldera, who campaigned against all that. Caldera
called for revoking a national sales tax, but won with only a
plurality and not enough strength to accomplish much. The sales tax
was "seen by many (IMF) economists as essential to recovery."
So now we have Hugo Chavez, and thank you, IMF. In 2000 U.S. Rep. Tom
Campbell (R-Cal) ran for the U.S. Senate. Campbell has a doctorate in
economics from Chicago, and is also a law professor at Stanford. He
proposed a flat 20% sales tax, to end the income tax. Bill Archer
(R-Tx), Chair of Ways and Means, had a similar proposal; but Campbell
would exempt food, medicine, and "the cost of housing up to an
average in a given area." Fresh-faced Campbell lost badly to
Diane Feinstein, but soon entered the Valhalla of failed candidates:
he is now California State Director of Finance, under Gov.
Schwarzenegger. Who knows what new surprises they are cooking up.
In 2002 voters in and around Modesto retired Cong. Gary Condit.
Condit had lined up with Dick Armey, Bill Archer, Sen. Richard Lugar,
and other sales-taxers to push for a national sales tax. Condit was
accused in a sex scandal, which may have helped beat him. However,
many other politicians, like Cong. Kenneth Calvert and Henry Hyde,
Presidents Warren Harding, Franklin Roosevelt, Dwight Eisenhower, John
F. Kennedy, Bill Clinton, and others have survived sex scandals, while
Rudy Giuliani, who moved his mistress right into Gracie Mansion, is
even considered prime presidential timber. In March, 2000, Richard
Riordan, candidate for Governor of California, lost the Republican
primary to Bill Simon, a weak candidate who then lost to Gray Davis.
Riordan, the early favorite, made many mistakes, but one of them was
retaining Michael Boskin as his economic advisor, helping alienate
whatever liberal Republican support he might have garnered. Boskin of
the Hoover Institution is a sales-taxer of the Bill Archer-Steve
Forbes genre.
The upshot seems to be that sales taxes have been instruments of
tyranny, voters do not like them, they stifle commerce and industry
and their own base, and they lead to national bankruptcy. We will
point up many more faults, in the next issue. Champions keep entering
the field because those with money and property keep financing them.
For most of us, though, the sales tax is a noxious idea.
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