MANY PEOPLE MAKE dubious claims about Adam Smith’s beliefs. The usual pattern is to claim that the economist was not really a wicked conservative (true) but a modern progressive (false).
Three common claims are that Smith favored progressive taxation, public education, and government regulation of monopoly. Two are entirely, one partly, false.
PROGRESSIVE TAXATION
SMITH’S FIRST MAXIM of taxation, from Wealth of Nations, is that the “subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”
Taxation in proportion to revenue is not progressive taxation. It is proportional taxation—in modern terminology, a flat tax.
Not only did Smith not endorse a progressive income tax, he did not endorse any sort of income tax. “Capitation taxes,” he warned, “if it is attempted to proportion them to the fortune or revenue of each contributor, become altogether arbitrary. The state of a man’s fortune varies from day to day, and without an inquisition more intolerable than any tax, and renewed at least once every year, can only be guessed at. His assessment, therefore, must in most cases depend upon the good or bad humour of his assessors, and must, therefore, be altogether arbitrary and uncertain.”
Smith did not want a tax on income. He wanted a system of taxation whose burden is proportional to income. Unlike most modern commentators, he realizes that determining who bears the cost of a tax is not as simple as seeing who hands over the money.
Here is another Wealth of Nations quote I have seen offered as evidence that Smith supported progressive taxation: “It must always be remembered, however, that it is the luxuries, and not the necessary expense of the inferior ranks of people, that ought ever to be taxed.” This is interpreted as meaning that Smith wanted to tax the luxuries of the rich rather than the necessities of the poor.
But here is the full paragraph:
It must
