Bouagelbert's Tax Thoughts

Adam Smith (1723-1790) became one of the founding fathers of economics in his book, An Inquiry into the Nature and Causes of the Wealth of Nations, by introducing the concept of free trade and division of labor. One of his key ideas was the idea of taxation and the role it plays in creating a sustainable system of governance.

The argument Smith makes in regards to taxation is multifaceted, but primarily focuses on two aspects, namely, the advantage of creating a system of taxation that is not oppressive to the people, and understanding the contribution of taxation to broad economic development.

Smith begins his book by stating, “It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense”, providing the conceptual framework from which he will proceed. He follows this up by laying out the need for a centralized government in order to foster economic growth, which then requires a taxation system to maintain it.

Smith attempts to explain why taxes should be raised in order to develop the economy - taxation provides an infusion of revenue into the national exchequer; this revenue can be used for further development in infrastructure and public works. He was an advocate of progressive taxation, claiming that wealthier citizens (or those with higher incomes) should have to pay more of their income in tax than those who are struggling financially.

Smith was also keenly aware of the dangers of oppressive taxation. As he writes, No tax can be justly imposed...which either exceeds the necessity of the state, or taxes the people beyond their ability to pay; for if it be beyond their ability to pay, it must necessarily impede their industry... He believed that governments needed to provide services and infrastructure to its citizens; this cost had to be paid for, and could be done so through a fair, progressive taxation system.

In summary, Adam Smith argued for the importance of taxation and governmental spending to provide necessary public goods and infrastructure, while keeping taxes fair and affordable for those on low incomes. He believed that a tax system should be progressive, with the wealthier portion of society paying an appropriate amount that allows for the improvement of public works. Smith also held that crippling taxes imposed by governments could lead to economic stagnation and decline, as it would lead to increased poverty and prevent people from engaging in productive activities.

Adam Smith, famous Scottish philosopher and economist, is known as the Father of modern Neoclassical Economics. Adam Smith’s most notable contribution to economics is his extensive work on taxation and its role in society. His views on the taxation system can be explored through the writings of his book “The Wealth of Nations”.

Adam Smith argued that taxes should be levied based on the general principles of justice, fairness and equity. He thought that taxes should be levied in proportion to the benefits received by the taxpayer, and applied accordingly to citizens of varying wealth. Smith generally advocated low and uniform taxes, although he did acknowledge that some taxes, such as those imposed for luxury goods and services, may be used to reduce public spending and the public debt.

In addition to advocating for a fairer taxation system, Smith also argued that the government should not be allowed to manipulate it for its own benefit. He proposed that taxes should be based on merit rather than convenience or favoritism. Smith also objected to the use of tax exemptions and privileges as a way of purchasing support from the wealthy or influential members of society.

In Smith’s view, taxes were necessary for the prosperity of a nation. He argued that the necessary revenue should be raised through the imposition of taxes and levies, while compensations should be made to reduce the effects of those taxed on the least able members of society. Smith also argued that taxes should be used to fund public services and infrastructure, such as roads and canals, which would benefit the entire population.

Adam Smith is considered to be an important economic thinker and his thoughts on taxation are still being discussed today. He argued that tax reforms should be made to ensure fairness, equity and justice and should not serve to benefit the wealthy or certain classes of society. Although Smith’s views have been adapted over time to meet the changing needs of society, his contributions to the field of taxation remain a major influence in economics and government policy.