Smith endorsed regressive consumption taxes despite professing progressive tax principles

Evidence

Having admitted that he needs the state, Smith must now find a way to pay for it, which necessitates taxes. Smith’s first principle of taxation is progressivity. That is, “the subjects of every state ought to contribute … in proportion to the revenue which they respectively enjoy under the protection of government.” This seems to imply that the rich should carry more of the tax burden since they enjoy more revenues protected by the state. However, Smith’s examination of different forms of taxation leads him to downplay progressivity, recommending consumption taxes on luxuries—anything above bare essentials—as the best way to fund the state. Yet consumption taxes are perhaps the most regressive form of tax. So, how does that sit with his idea of proportionality? — Mark Blyth, Austerity, 300

Categorization

• XREF: Smith’s regressive-tax recommendation foreshadows the flat-tax and consumption-tax arguments revived by austerity advocates today.