This post is designed to analyze an excerpt from Henry George's writings
Henry George wrote on the Income Tax in 1887:
"The world calls on me to abandon my absurd theory of taxing land values and to support instead an income tax as a means of relieving working people of unjust burdens"
He didn't reject it outright. But he did have caveats:
"If the world sees me further, and is prepared to advocate an income tax in lieu of other means of raising public revenue, or any considerable part of it - as for instance, that now collected at our custom houses by onerous duties upon the bringing into the country of things the people want - it would give me much pleasure and would do a great public service."
Here he's advocating the core principle of progressive taxation. It's not about punishing people, but it is about equity, "fairness or justice in the way people are treated." When the Income tax was first created it's primary goal was "unearned income", which included income from "other people's money", the money privilege and other forms of privilege, and did not normally apply to ordinary wages. Such a tax was far superior to the existing taxes which burdened workers, farmers and other ordinary people.
I'm adding some grammar for emphasis, but he goes on:
"For the income tax has some great advantages over the indirect taxes, by which so much of our revenues are raised. Unlike those taxes;
it does not check and hamper production, and it does not fall upon the poorest class with far more weight than it falls upon the richest class. It does not aim to tax a man upon what he consumes, but, which is much more rational, upon what he receives."
He continues to explain his belief that these indirect taxes don't fall on the capitalist or the foreigner, but on ourselves. The argument is core to both Georgism and modern conservatism:
"And any discussion by such a powerful journal as the World of the income tax as a substitute for those indirect taxes would at least cause thousands of people to see their disadvantages, and to get at least such a first lesson in the incidence of taxation as would enable them to realize that in taxing capital they are not taxing the capitalist and that in levying duties on the entrance of foreign productions they are not taxing the foreigner but taxing themselves."
His argument is that these taxes get "passed through" to consumers.
Nevertheless the Income Tax was not Henry George's preferred solution:
"But while for all these reasons I should think the advocacy by the world of an income tax in lieu of worse taxes would be a step in advance, I myself cannot advocate it. My aim is not merely "to relieve the working people of unjust burdens," but to relieve all people of unjust burdens; and, believing as I do in the sacredness of private rights, I would not tax any man who had a large income, for that reason alone, any more than I would tax a man with a small one. I am neither a socialist nor a communist, and have no quarrel with rich people because they are rich."
This was not because he was against an income tax. Indeed his land value tax can be interpreted as an income tax. Moreover, his disciple Thomas Shearman would come up with a Georgist Income Tax that almost became the law of the land until it was shot down by the Supreme Court as a direct tax.
He explains that simply taxing the proceeds of monopolies is not enough;
"If men are today able to get large incomes by reason of monopolies which permit them to appropriate the proceeds of other people's toil, I would abolish those monopolies, and not, while leaving the cause of the unjust distribution of wealth in full operation, endeavor somewhat to equalize things by taxing incomes."
Then he states his principle of equity behind both his LVT tax and why we should end Monopolies in general:
"Whatever any man may fairly earn, whether by his labor, his skill, his capital, or his organizing ability, without interfering with the equal rights of others, I would leave entirely to him, and not tax him a penny on that account, even though his income amounted to millions."
The key here is "The equal rights of others", the equity; fairness, justice, and freedom from favoritism. If something is a monopoly because it is the best way to organize production, as long as that enterprise is run for the general good, why would one want to punish the person organizing it? George would agree with others of his day such as Theodore Roosevelt, that only "bad monopolies" needed to be punished. But his definition of a "bad monopoly" was a little clearer than TRs. Essentially he's saying that as a friend explains;
- "All monopoly is bad.
- ...that it is not a monopoly if it does not interfere with the rights of others."
Monopoly is the ownership of the commons, of common property, or the arrogation of property. It results in the control of the market for goods or a particular good. It thus represents some form of oligarchic or even dictatorial power over others. Thus monopoly by it's very nature interferes with the rights of others. It is "private, separate advantage" or bad government. His LVT was meant to fight such monopoly on land. But other monopolies simply need to be ended either by law or policy. Those who interpret his writings to justify monopoly business should re-read what he's saying. He wanted monopolies to be nationalized. [see quotes at end of document]
Critiques of the Income Tax
Henry George's criticism of the income tax reflects his belief that taxes should be fair and come from "unearned income." They also reflect his doubts that the income tax could be effective against the very people it was meant to apply to.
"But without references to objections of this kind, which the world may consider theoretical, there are certain very obvious objections to the income tax which are enough to discredit it, even if otherwise no objection could be made."
These objections are not theoretical. They go to the difficulty of reigning in power and influence with tax policy.
Tax upon Conscience
"Like the greater part of our present taxes, but even more directly and obviously than most of them, when an attempt is made to apply it, becomes a tax not so much on income as upon conscience."
A "Tax on Conscience" means that those who have a conscience will pay it, maybe even pay more than their share.
"This was abundantly shown during the period in which the national government imposed a tax upon incomes."
The Income Tax of The Civil War
When Henry George refers to "the period" he's referring to the Income Tax of the Civil war:
"In 1862, in order to support the Civil War effort, Congress enacted the nation's first income tax law. It was a forerunner of our modern income tax in that it was based on the principles of graduated, or progressive, taxation and of withholding income at the source. During the Civil War, a person earning from $600 to $10,000 per year paid tax at the rate of 3%. Those with incomes of more than $10,000 paid taxes at a higher rate. Additional sales and excise taxes were added, and an “inheritance” tax also made its debut." [Infoplease]
The difficulty of Equity in Enforcement
The Tax worked, more or less, the wealthy oppose it. And ordinary people go along because while they conscientiously pay. The problem is that it is easier to impose the tax on wages than on unearned income and so workers wind up paying it!
"The tax gatherer can ascertain the incomes of men who work for salaries or wages, and in most cases, at least, of those whose incomes, as in the case of many widows, and orphans, are derived from property held in trust or under guardianship;"
While at the same time Henry noted:
"but there is no possible way by which he can ascertain the incomes of businessmen, capitalists, speculators and others, who as a class, have the largest incomes."
One of the advantages of our Banking system is that the use of bank accounts, accounting requirements, and similar double entry accounting methods makes it easier to do this in 2015 than it was in 1887. But it is still far easier for the businessman to hide his or her income than for salaried people or people with fixed incomes or trusts. So this criticism of effectiveness applies to the present day. The conscientious pay, while the unscrupulous and corrupt buy congress or simply hide their money in the Cayman Islands!
So of course that is why Henry George called it a "Tax on Conscience." For Con artists, sociopathic corporations, and those who call themselves "conservatives" (oxymoron), their consciences rest easy as they avoid paying taxes or find ways to get government subsidies instead; No conscience means no taxes paid.
"The consequence is that an income tax, even with all the inquisitorial devices that can be suggested, is easily evaded by the very classes upon whom its advocates would have it fall, while it not infrequently happens that buseinss and professional men are compelled, by the fear of the injury that might be done them were the smallness of their real incomes known, to make a false return and pay a tax larger than the law designs."
Henry George's Land Value Tax can also be seen as a tax on revenues (income) from the value of the land people possess, or "economic rent." He saw such a tax as being more difficult to evade. Georgists included Land Value Taxation in the Income tax of 1894-1895 which was shot down by the Supreme Court because they ruled such taxes "direct taxes." This led to the 16th amendment which clarified that Congress could tax all sources of Income, including land values. Over the years lawmakers and lobbyists have preferred to ensure that both income taxes and property taxes fall on the middle class primarily and become as onerous as possible -- and have fought progressive efforts to improve them. An entire industry has grown up around avoiding reporting, declaring or paying income taxes. Henry George's warning has proven accurate.
Of course as we've seen with California's history with property taxes. Even where you have a relatively fair initial property tax, the wealthy and connected find ways to; first use their power to shift the burden to the poor and middle class; and then; to use any issues with fairness/equity to ensure that property taxes are capped and they don't have to pay them. An LVT can be useful but it's not more a guarantee of integrity than the income tax. That's my opinion at least. People who don't have a conscience find a way to avoid taxes.
Notes and Post Script
I posted this to give meat to discussion. Henry George is being nuanced here and so there is grist for both pro-Income Tax and anti-Income Tax partisans. But more important than that argument is the moral argument. He obviously is weighing on the side of progressive side taxation. And I don't think anything in his article disputes that except his references to millionaires who earn their incomes. But that is the caveat, the income has to come from being earned. It can't come from monopoly power. The greatest example of monopoly power in Henry Georges times were the railroads, and he was for Government Ownership of the Railroads. [see Books such as Railroaded]
- The Standard:
- This was transcribed from a document signed on November 19, 1887 by Henry George and also appears in the November 19, 1887 issue of The Standard. My friend Rick Dimare bought an E-Version of the entire run of the Standard Newspaper until it was closed so that Henry George could move to Manhattan. You can look at some of them here:
- Sadly the free copies only run to October
- Definition used of Equity:
- "a : justice according to natural law or right; specifically : freedom from bias or favoritism"
- "b : something that is equitable"
- Civil War Income Tax
- My Copy of the Source
- Ricks' scan of "The Standard": Facebook Image taken 8/10/2015 [probably won't work for you. I saved copies on my hard drive and I put the URL mostly to show what it looked like in the newspaper, but it's not necessary except to me as someone who likes to meticulously footnote.
- Henry George on the Railroads:
- "Their model for Government ownership was the Post Office...the post office was a model of efficiency, expertise and dependable service..."
- "The California Populists [including George] demanded the "absolute and unconditional" government ownership of the railroads and they wanted it "as speedily as possible."... "The St. Louis convention....endorsed nationalization in 1891". [pages 333-334]
- Railroaded: https://books.google.com/books?id=Iiq0ZDlzDoYC&dq=Henry+George+Railroads+Populists&source=gbs_navlinks_s