August 19, 2014

WHICH IS THE COROLLARY OF THE NATURAL RESOURCES CURSE:

Can taxing the wealthy strengthen democracy? (Deborah Boucoyannis, August 18, 2014, NY Times)

The historical record, however, suggests that taxing the wealthiest does have an important, but different, consequence: making the wealthy vested in the common good. In fact, taxing the wealthy was crucial for the emergence of representative government itself.

Based on an original database of about 600 members of the English nobility between 1200 and 1350, my research shows the remarkable scale of the obligations, both fiscal and military, that the wealthiest in England owed to their crown. Unlike their French or Spanish counterparts, who were typically exempted from fiscal duties, the English nobility bore a heavy burden on both fronts. Almost all were obliged to perform military service and more than 30 percent had their estates confiscated over unfulfilled obligations to the crown, whether temporarily or permanently. Between 20 and 40 percent were in debt to the crown, usually for overdue taxes.

The high fiscal burden remains obscured because some of the most famous nobles, the topmost level of society, paid little in taxes. Probably the richest noble of the 1290s,the Earl of Cornwall, had an annual income amounting to 3,000 or 4,000 pounds, yet he contributed only about £10 in taxes.

What this misses, however, is that the earl had lent over £18,000 to the crown throughout his life, which could have been about 20 percent of his lifetime income -- a remarkable amount when the highest tax rate at the time was 10 percent. Such loans were advanced by many of the earls and top nobles. Furthermore, the Earl of Cornwall was never reimbursed; in fact, when he died childless, virtually his entire estate was forfeited to the crown.

It is unsurprising, therefore, that at least 75 percent of the nobility attended parliament. Two separate forces pushed them. First, because the government was forcing nobles to loan it money, these nobles supported the government's ability to raise taxes from other sectors of society, so that the government could pay the nobles back. Loans are serviced by taxes, and one of the biggest obstacles to taxation is that local elites will resist it; but once these people are vested in the government and in its ability to tax, they enable that capacity to grow--or at least their resistance weakens.

A similar dynamic helps explain the emergence of democracy in the city-states of Europe. The political scientist David Stasavage has described how merchants were heavily vested in the public debt of various city-states, as well as early modern England, and this secured their presence in the representative assemblies that granted taxation. This was an ancient practice after all: Plutarch recounted how Eumenes, a Macedonian general, accepted loans from his rivals, thus vesting them in his survival and co-opting them.

The second force pushing the rich to hold the government accountable is that when they are forced to pay high taxes, they feel compelled to monitor the government's actions and check how their money is spent. Where the rich are not vested in public affairs through high contributions, they are less likely to use their bargaining powers to bring change.

No representation without taxation.
Posted by at August 19, 2014 5:25 PM
  
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