The Income Tax: A Study of the History, Theory, and Practice of Income Taxation at Home and Abroad

"Joel: This book is by one of our heroes, Edwin Seligman, who was a professor at Columbia University at the turn of the 20th century. He began this book in 1894. In that year, the US passed an income tax and he was thinking, during the initial debate, ‘I’m going to put together what’s known about income tax.’ It had been levied in many countries before that. Then, in 1895, the Supreme Court said, ‘One problem: an income tax is unconstitutional.’ Seligman then stewed about it. The first edition of this book is 1911, 17 years after he started. This is when the US was seriously thinking about an income tax again. It was understood that we needed a constitutional amendment and the 16th amendment passed in 1913. In that year, the US passed an income tax, the Revenue Act of 1913. I find the origin of the book and the fact that he’s writing it in parallel with the US introducing an income tax to be fascinating. Seligman was a supporter of the income tax and, in the second edition, published in 1914, he adds a little chapter at the end with his evaluation of the US income tax that was passed. He’s an academic, so of course he’s got a couple of things he would have done differently, but he’s mostly supportive. Mick: The thing that really stands out for me about this book is that Seligman was such an incredible scholar. He read the most obscure tracts in their original German and French. In erudition, he’s the Edward Gibbon of taxation. You wonder how on earth he wrote this book without Google. Scholarship isn’t as universal amongst academics as often thought, but he is a shining example. Joel: For the British, who introduced it in 1799, the income tax is actually a 19th century phenomenon. But yes, for the US and others it came to maturity in the last century. In the US, the income tax was meant to replace excise taxes and tariffs, which were perceived as putting the burden too heavily on low-income people. That’s what propelled the income tax in the US. At first, it didn’t mean a big increase in total revenues. It did prove to be successful, though, so whether the presence of an income tax leads to higher revenues later, that’s a tough one to figure out, but it certainly could be so. In any case, the income tax is still the principal policy tool for achieving tax progressivity, although the idea of adding a highly progressive annual wealth tax has recently been mooted. “Under the century-old norms, if a company is not actually physically present in your country…they are not required to pay corporate tax there” Mick: You’re right, Sophie, that looking over the millennia of history, rulers and governments and princes and kings have always looked for some kind of indicator, some proxy, for how well off people are, on which to then base tax liability. And that proxy has changed over time. To begin with it was the land you had, then it was how many fireplaces you had, or what your social class was, or how many windows there were in your house. The income tax, in a way, is just using today’s best feasible proxy. There’s a nice quote from Seligman that we include in the book, making clear that the income tax is not perfect but is the best we’ve got for now. We’re still figuring out what might come next, whether it’s something Joel has written about, looking at taxes based on your genes, or something else. There are all kinds of things we might end up looking at. Joel: I would say that except for the world ‘never’, that’s right. There are isolated incidents, with particular circumstances, where it looks like there might have been a Laffer curve phenomenon. A cut in the tax on tea in eighteenth century Britain may be one such case. But as a general proposition about lowering income tax rates in the UK, the US, or other advanced economies, the evidence is clear that it just doesn’t happen."