When Governments Can‘t Force Elites to Pay Taxes, They’re in Trouble
By: Historical Insights
Tags: Taxes, Politics, 2020 Presidential Race, Economics, History

Photo by Olga DeLawrence on Unsplash

The big news today is that Donald Trump’s tax returns, which were obtained by The New York Times, show us something that is unsurprising but still revolting.

We see in Trump’s laughably low income tax payments that the American tax system operates on two levels. For the thousandaires — the schoolteachers and grocery store clerks and nurses who collect their W2s and fill out their 1040 on TurboTax — there is one set of rules, and there are clear punishments for disobeying them. For millionaires and billionaires who can afford accountants and lawyers to hide their money, there is quite another set of rules.

The IRS, which is underfunded and understaffed, has admitted that the wealthy are more likely to get away with tax evasion because it’s too difficult for the government to go after them. This situation is not just fundamentally unfair, it’s actually a common symptom of social and political decline. Find a society in history where the elites have figured out how to avoid paying their fair share, and you will likely find one that’s past its peak and teetering on the edge of instability.

Rome might have lasted a little longer had the rich paid their taxes (CC 4.0)

As the western Roman Empire was entering its terminal period of decline in the 400s CE, the government struggled to collect enough revenue to function. Taxes had gone up pretty consistently in Rome since the 200s.

This was partially because ongoing wars (and, when that didn’t work, trying to pay off Rome’s enemies) and a bloating bureaucracy cost an immense amount of money. But taxes also increased because fewer people were paying them.

Roman elites had found ways to get around their tax obligations. The elites who, in theory, owed the most in taxes were often the people who were in charge of collecting taxes.

Many of these wealthy officials made sure that their cronies did not have to pay — or they collected taxes and kept them for themselves rather than passing them on to the government. Wealthy landowners also frequently tweaked their agreements with their tenants to pass the burden of taxation onto them. As Salvian, a Christian writer in the 400s, wrote:

Taxation is made more shameful and burdensome because all do not bear the burden of all. They extort tribute from the poor man for the taxes of the rich, and the weaker carry the load for the stronger. There is no other reason that they cannot bear all the taxation except that the burden imposed on the wretched is greater than their resources….

As the number of taxpayers declined, the burden on those who did pay increased. Rome ended up in fiscal turmoil by the middle of the 400s, in large part because of the refusal of elites to pay their fair share. The empire fell soon after.

The Tang Dynasty in medieval China was a vibrant period known for trade, art, and poetry. But after a devastating civil war — the An Lushan Rebellion of the 750s — the government became unable to effectively collect taxes. Wealthy landowners found ways to evade the tax collector in the chaos that followed the rebellion.

Some “donated” their land to Buddhist monasteries, which would take a cut of the revenues from the farm in exchange for extending their tax exemption to the landowner. Other wealthy people would gain exemptions for themselves or family members by becoming Buddhist or Daoist monks.

Massive, tax-exempt landholdings dominated the countryside while ordinary citizens paid an increasing percentage of the taxes. In the end, a salt smuggler named Huang Chao led a revolt against the Tang monarchs. Himself a tax evader (smugglers like him allowed Chinese citizens to avoid paying salt taxes), Huang Chao led angry Chinese citizens against a ruler and elites that they saw as corrupt.

The Tang Dynasty didn’t have the resources to contend with this rebellion and fell soon afterward.

The Third Estate carries the First and Second Estates on its back, 1788 (public domain)

The French Revolution was also partially a result of elites’ tax avoidance. France’s frequent participation in the wars of the eighteenth century — along with the extravagant personal spending of its monarchs — had left it deeply indebted and in need of revenue.

The clergy — some of whom were quite personally wealthy — were exempt from taxes. Many members of the nobility also had privileges that allowed them to pay little to no tax on their land.

Nobles often found ways to avoid the capitation, or head tax, even though they were technically required to pay it. Therefore, the burden of taxation fell largely on ordinary people — the so-called Third Estate.

Nobles did not have to pay the taille, a tax that supported the military, and many wealthy members of the bourgeoisie found ways around it as well. A 1694 pamphlet reflected people’s frustration at the unfairness of the system:

“The great evil of the taille is the unequal manner in which people are assessed by the authorities and the collectors, who favour their own friends to the detriment of the rest. Industry is taxed, so are talent, exertion and success. Every improvement a farmer makes on his ground exposes him to a heavier taille. A poor cobbler or other artisan, who has nothing in the world but his labour, is assessed four or five crowns a year. A baker at Gonesse, near Paris, who has not an inch of land, is assessed for his personal estate 1,200 French crowns.”

The events of the French Revolution began with Louis XVI trying to force nobles to pay taxes. Unsurprisingly, they refused, unwilling to give up the privileges they had acquired. Louis was forced to then call the Estates-General in 1789, which led to the breakdown of French politics.

What does it mean when the government can’t force the wealthy to pay their fair share of taxes? Usually, it means that the government cannot — or will not — enforce laws fairly across society.

Sometimes this happens because elites have captured government, either by taking control of the government themselves or (in more modern, democratic systems) using campaign contributions to buy favorable policies. The wealthy in many of these societies had figured out how to use the machinery of government to preserve their privilege and extract more and more money out of the system.

It also usually means that elites have lost any sense of obligation to society. There’s no longer a feeling that they owe something to the society that helped them to enjoy such privilege. The ordinary people who are left footing the bill in society usually become angry and disillusioned.

Elite tax avoidance is often a key domino in the breakdown of stability and order in a society. If paying taxes is for chumps (as President Trump intimated in a 2016 presidential debate), people reason, why should I be a chump? It’s even more disgraceful in a democratic society — after all, our tax dollars aren’t being spent to build a palace for the king, they are at least theoretically being spent for our collective welfare.

Hopefully, the sorry saga of Donald Trump’s taxes will wake us up and inspire Americans to demand more from our government and the wealthy. If not, we are likely to head down a well-traveled path that leads from the breakdown of a tax system toward decline.