Tax Thoughts of the Classical School

Classical Taxation theorists

The Classical Taxation theorists emerged in the late 18th century, often referred to as the “fathers” of public finance and tax theory. These theorists are Adam Smith, David Ricardo, and John Stuart Mill each of whom had individual views on taxation and public finance.

Adam Smith

Adam Smith is considered the father of economics and is one of the most influential Classical taxation theorists. Smith’s view of taxation was that it should be used to raise revenue for public purposes and believed taxes should be used to fund only those services that benefit everyone. He also argued that taxes should be uniform, fair, and progressive. His original views on taxation were that taxes should be indirect and proportional to the individual’s ability to pay. Smith argued that a tax should be different from a fee since it is used to fund public purposes and required from everyone. He also believed that exceptions should be made for those who are unable to pay the same amounts. In his book, “The Wealth of Nations”, he wrote about the importance of taxes, suggesting that those with the ability to pay should pay more proportional to their income.

David Ricardo

David Ricardo was a British economist and taxation theorist who is considered one of the founders of classical economics. Ricardo is best known for his work on the theory of rent and his views on taxation. He argued that a system of taxation should ensure that the burden of taxation is spread equally among beneficiaries. He believed in a progressive taxation system, where individuals with higher incomes are taxed higher than those with lower incomes. He also argued that taxation should be based on ability to pay and should be used to reduce income inequality.

John Stuart Mill

John Stuart Mill was a British philosopher, economist and taxation theorist. Mill disagreed with Smith, believing that taxation should be used to not only raise revenue for public services but also to affect social outcomes. He argued that taxes should be used to redistribute wealth which would result in more efficiency within economies. Mill further argued for progressive taxation, believing that higher taxes for higher incomes and reduced taxes for lower incomes could help to create a more equitable and efficient society.

Conclusion

The Classical Taxation theorists laid the foundations for modern tax theory. They provided an understanding of the roles of taxation and its potential to affect the social policy of a country. Their beliefs on progressive taxation and the importance of the ability to pay still holds true today and continues to shape the taxation policies of many governments.

Classical economics is a school of economic thought that was developed in the late 18th and early 19th centuries in response to the mercantilist movement, which had been dominant in Europe for centuries prior. The most influential figure in the classical school of economics was Adam Smith, a Scottish philosopher who is often referred to as the father of economics. His magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, is considered to be one of the most influential books ever written on economics.

The classical school of thought operated on the basis of three main principles: Says Law, the labor theory of value, and the principles of supply and demand. Says Law is the concept that the production of goods in an economy creates demand for the same goods. This is based on the idea that when people produce more goods they need more money to purchase them, which in turn stimulates the economy. The labor theory of value is the concept that the value of a good is directly related to the amount of labor that went into producing it. This theory applies to both goods and services, as well as their pricing. The final principle is that of supply and demand; this is the notion that when demand increases, the price of a good increases, while if the supply increases, the price drops.

When it comes to taxes, the classical school of thought favored a limited, regressive form of taxation, meaning that wealthier citizens paid higher rates than lower-income citizens. Their belief in a limited form of taxation was based on the idea that taxes should only be used to support the government in its necessary functions, such as defense and maintaining public infrastructure. They believed that taxes should not be used for the redistribution of wealth, and should not be used to discourage people from producing goods and services. The primary focus of their taxation was to increase the amount of money available to fund public services, rather than to redistribute wealth.