Historical 'chutzpah'

Posted: Jan 24, 2001 12:00 AM
There is a great Yiddish word, "chutzpah," to describe brazenness. An oft-used example of chutzpah would be a child who just murdered his parents seeking mercy on the basis of now being an orphan. Another example of chutzpah appeared in the Los Angeles Times on Jan. 22, where a liberal professor tried to argue that the great economist Adam Smith would oppose George W. Bush's tax cut were he alive today. The professor, Sam Fleischacker of the University of Illinois, leaned heavily on the following quote from Smith's "The Wealth of Nations" (1776): "Every tax ... is to the person who pays it a badge, not of slavery, but of liberty. It denotes that he is subject to government, indeed, but that, as he has some property, he cannot himself be the property of a master." Fleischacker deduces from this that Adam Smith would support the high levels of taxation we have today for the purpose of alleviating poverty, ensuring the public health and other liberal causes. Nothing could be further from the truth. To begin with, Fleischacker takes his Smith quote totally out of context. Smith was not talking about taxes in general, but about a particular type of tax called a head tax or poll tax. Such taxes, common at the time, were a lump-sum payment by all citizens regardless of income. The point Smith was making was that head taxes were paid only by free men and not by slaves. Therefore, payment of a head tax meant only that someone was not chattel. Of course, Smith was not an anarchist and therefore was not opposed to taxation, per se. But he was by no means a supporter of heavy taxation to fund liberal social programs, as Fleischacker implies. It is intellectually dishonest to do so. What Smith was mainly concerned about in all his writings about taxation were the disincentive effects of high tax rates on businesses and individuals. His goal was to see that government collected what it needed to meet its legitimate functions, which were quite limited in Smith's view, at as little cost to the economy as possible. In his fourth maxim of taxation, Smith warned that high taxes "may obstruct the industry of the people, and discourage them from applying to certain branches of business which might give maintenance and employment to great multitudes." In that same paragraph, Smith noted that "an injudicious tax offers a great temptation to smuggling." Later on in "The Wealth of Nations," Adam Smith returned to the subject of taxes and smuggling, saying that excessive taxes may actually reduce government revenue. Said Smith, "High taxes, sometimes by diminishing the consumption of the taxed commodities, and sometimes by encouraging smuggling, frequently afford a smaller revenue to government than what might be drawn from more moderate taxes." Smith was also concerned that high taxes drive away capital and those with capital to other countries, which also reduces government revenue by reducing economic growth. "A tax which tended to drive away stock (capital) from any particular country," he said, "would so far tend to dry up every source of revenue, both to the sovereign and to the society." Adam Smith was very much opposed to what we call the capital gains tax. "All taxes upon the transference of property of every kind, so far as they diminish the capital value of that property, tend to diminish the funds destined for the maintenance of productive labor," he wrote. Likewise, Smith viewed the estate tax with disdain, calling it "cruel and oppressive." The fact is that Smith's views on taxation were very consistent with his general economic philosophy, which strongly favored private property and free markets. He perhaps said it best in a 1775 lecture quoted by his friend Dugald Stewart: "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which forces things into another channel or which endeavor to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical." That was good advice then and good advice now. All the evidence of the last 225 years since Adam Smith wrote those words confirms their wisdom. Those nations that have grown the fastest and created the most wealth for their citizens have been those that followed the Smith model. Those that have followed the Fleischacker model and imposed oppressive taxes to pay for liberal social programs have been left in the dust. Distorting Adam Smith to try and prove otherwise cannot change that truth.