Turgot's Tax Thoughts

The taxation philosophy of Adam Smith, often referred to as the father of modern economics, has been a major influence in the field of finance for over two hundred years. His writings and teachings have informed taxpayers, policymakers, and tax practitioners of the importance of fair taxation in order to promote economic freedom and prosperity.

Adam Smith firmly believed that taxation should be used to bring about equitable distribution of wealth while also encouraging citizens to contribute to the public good. Smiths writings on taxation featured a wide range of topics related to taxation, with the main goal being to ensure taxes were just and effective.

In The Wealth of Nations, Smith wrote of how taxation should be seen as a means of “encouraging private industry” and discourage consumption, as consumption does not create production. He argued for a progressive taxation of income and for taxes to be graduated according to the level of income one earned. He also distinguished between what he termed the “necessary” and the “convenient” taxes. The necessary taxes, such as the tax levied on commodities, were the ones Smith argued should be encouraged in order to fund public spending and provide citizens with basic public amenities. Smith believed the convenient taxes, such as the tax levied on luxuries, should be discouraged, as they usually only serve to reduce the “wealth of the people”.

Furthermore, Smith argued that taxes should be collected in as simple a manner as possible, as complex collection systems tended to be the most expensive. He also argued that although tax collection should be minimal and efficient, those that have an obligation to pay tax should not be imposed with an excessive burden. In this way, Smith argued that taxation should not be seen as a tool of punishment or extortion, but rather as a means of providing public benefits for the betterment of society.

Smith’s philosophy also addressed issues of wealth redistribution. He argued for a moderate redistribution of wealth to ensure that the most vulnerable members of society were not left out in the cold. Smith argued that the richest members of society should be obligated to pay taxes to help support the most disadvantaged members of society. He argued that this was the only way to ensure the poor were not exploited.

Finally, Smith argued that taxation ought to be seen as a means of incentivizing productivity. Rather than trying to collect as much tax as possible, Smith believed that larger taxes should be placed upon activities that generated little economic output, while lower taxes should be placed upon activities that created more economic output. This way of looking at taxation turned it into a tool of public policy, one that could help promote economic growth and prosperity.

In conclusion, Adam Smith’s writings on taxation have served as the foundation of modern tax policy. His view of taxation as a tool to help promote economic liberty and to ensure the equitable distribution of wealth is one that has been supported by many governments throughout the world. His writings on taxation have helped guide the development of modern economic theory and have helped shape tax policy for over two centuries.

Adam Smith (1723-1790) is widely regarded as the founder of modern economics, and is known as the ‘father of economics’. He is also credited with a number of taxation concepts. The ideas of Adam Smith about taxation were strongly influenced by mercantilism, which sought to increase a country’s wealth through a favourable balance of trade. Smith believed that taxation was necessary to fund the government and provide public goods and services. He argued for the use of a progressive tax system, whereby those with higher incomes pay more, as a more equitable way to raise revenue.

Smith also argued that taxation should be used to encourage certain economic activities. For example, he advocated for taxes on luxury goods as a way to reduce consumption and increase production, and also as a means of discouraging economic activities that are wasteful or unproductive. Taxes on commodities such as salt, alcohol and tobacco were introduced in the eighteenth century, following Smith’s proposals.

A key concept in Smith’s fiscal policy is the ‘invisible hand’, which refers to an invisible force that guides the economic decisions of individuals, resulting in a more efficient allocation of resources. Smith argued that, if markets were left to their own devices, individual producers and consumers would collectively make decisions that benefited society as a whole. By allowing the ‘invisible hand’ to guide economic decision-making, Smith believed that taxation could be used to promote economic growth, rather than by interfering in the markets.

In summary, Adam Smith is the ‘father of economics’ and the originator of numerous taxation concepts. He believed that taxation was necessary to fund the government, but advocated for the use of a progressive tax system. Smith also argued that taxes should be used to influence behaviour and encourage economic activity, and his notion of the ‘invisible hand’ argued that taxation had the potential to promote economic growth.