It therefore appears that the high tide of direct taxation has passed, though it is not clear whether a new equilibrium has been reached. It is often said that the appetite of the British and American electorates for cuts in direct taxation has waned since the 1980s; and there are those who maintain that British voters would pay more income tax if they believed it would lead to an improvement in public services. The reality is that, as international barriers to the migration of skilled labour have fallen, so the degree of tax competition between nation states has tended to rise. We are therefore unlikely to see a return to the punitively high marginal rates of taxation seen in the 1970s, though that is not to say that the aggregate revenue from direct taxation might not increase even as rates are further reduced. The fact remains that indirect taxation, whether on consumption or on turnover, is cheaper to levy and on balance less objectionable to those who pay it. People are much less likely to emigrate to escape 70 per cent cigarette duties than to escape a 70 per cent income tax bracket. On the other hand, excessive indirect taxation will tend to encourage smuggling and the black economy. Like Gladstone, modern finance ministers must therefore continue to pay their addresses to both the sisters – unattractive though they appear to the taxpayer.
THE POET AS TAXMAN
This chapter began with a famous exchange about the inevitability of taxation between Benjamin Franklin and Jean-Baptiste Le Roy in November 1789. Without unpopular taxes, it might be said, Franklin would not have found himself the plenipotentiary of a new republic. And without political problems not unrelated to taxation – about which more in the next chapter – Le Roy might have lived the rest of his life under an absolute monarchy. Another man who, by temperament and conviction, would have made a fine revolutionary in the same era was the Scottish poet Robert Burns. Low-born, a Freemason, a religious sceptic, a nationalist, a drinker and a womanizer, Burns might, with a little less levity, have been Scotland’s Danton. As early as 1785 he was penning risqué verses in celebration of ‘LIBERTY’s … glorious feast’; events in France after 1789 served to politicize him further. By the mid-1790s he counted among his ‘most intimate’ friends Dr William Maxwell, who had been among the guards in attendance at Louis XVI’s execution – an event Burns dismissed scornfully as ‘the delivering over [of] a perjured Blockhead … into the hands of the hangman’.144 Filled with egalitarian zeal, it was Burns who gave the revolutionary era one of its most enduring anthems in ‘A Man’s a Man for a’ that’:
For a’ that, and a’ that,
It’s comin yet for a’ that,
That Man to Man the warld o’er,
Shall brothers be for a’ that.145
A less well-known example of Burns’s radicalism is his populist attack on the excise tax, ‘The De’il’s awa wi’ th’ Exciseman’, composed in 1792, which nicely captures popular attitudes towards the British state’s ubiquitous revenue-gathering agency:
We’ll mak our maut and we’ll brew our drink,
We’ll laugh, sing and rejoice, man;
And mony braw thanks to the meikle black deil,
That danc’d awa wi’ th’ Exciseman.146
Yet Burns’s revolutionary potential never came to fruition, as it might have done had he been born in France or emigrated – which he briefly contemplated – to the colonies. And one reason for this lies in the simple fact that, from 1788, he himself was in the employ of the Excise, on a starting salary of £50 per annum, plus commissions on goods seized.147 This was no post for a would-be Jacobin. In December 1792, when Burns was accused of ‘disaffected … political conduct’ during a revolutionary commotion at the Dumfries playhouse, he had to write a grovelling letter of denial to his patron, Robert Graham of Fintry, the Commissioner of the Scottish Board of Excise. Admitting to having been France’s ‘enthusiastic votary in the beginning of the business’ (meaning the Revolution), Burns now solemnly pledged to ‘seal up [his] lips’.148 He would sing the revolutionary Ça ira no more.
As we shall see, the strength of the Hanoverian British tax system lay precisely in the way it combined élite sanction through parliament with public compliance – and complicity – through bureaucracy. Even in his letter of exculpation, Burns still ventured to assert that ‘an alarming System of Corruption has pervaded the connection between the Executive Power and the House of Commons’. But the point was that, for the sake of his job with the Excise, he would cease to voice such beliefs. The ‘System of Corruption’ had him firmly in its grip.
It is to the relationships epitomized by Burns’s predicament – between taxation, representation (or lack of it) and administration – that we now turn.
3
The Commons and the Castle: Representation and Administration
In moderate states, there is a compensation for heavy taxes; it is liberty. In despotic states, there is an equivalent for liberty; it is the modest taxes.
MONTESQUIEU1
For most of history, direct taxes could be collected only with the cooperation of the richer groups in society. For that reason, the widening of the direct tax ‘base’ has very often been associated with extension of political representation, as taxpayers have traded shares of their income for participation in the political process, a fundamental part of which is the enactment of tax legislation. In this model, the process of democratization is inseparable from the growth of the band of income and property tax payers. The slogan ‘no taxation without representation’ neatly encapsulates the trade-off.
However, an alternative – or, more often, additional – direct tax-raising strategy has been to create a competent civil service paid by the state to collect tax. In this model, there is representation of a sort; but participation in administration clearly differs from participation in legislation. If liberty is well served by the representation of taxpayers in legislatures, it is generally diminished by the growth of a tax-collecting bureaucracy.
This chapter is about the interaction of these related processes: tax raising; the growth of political representation; and the growth of civil services. Though its starting-point will be familiar to any political theorist, its development is novel. The key point is that far from leading to a gradual parliamentarization (the ‘Whig’ paradigm caricatured by Herbert Butterfield2) – or, for that matter, to a happy ‘post-historical’ equilibrium – the interaction of taxation, representation and administration can produce a variety of different outcomes, not all of them benign.
An important measure introduced here is the ratio of voters to taxpayers, and particularly income tax payers. If that ratio is significantly above unity – if there is representation without taxation, in other words – then the executive can be susceptible to political pressures for increased non-military expenditure from the untaxed or less taxed voters. Also potentially important is the ratio of public employees to taxpayers. It is not coincidental that democratization often coincides with a growth in public employment, transforming the relatively exclusive system of patronage of the ancien régime – lampooned as ‘old corruption’ by nineteenth-century reformers – into a new form of corruption in which the voter-clients of democratic political machines are rewarded with ‘jobs for the boys’. The bureaucracy, which to begin with optimized the state’s revenue raising power, becomes itself an expense.
Both the expansion of the franchise and the expansion of public sector employment tend to push up non-military expenditure. This was the ‘law of the growing activity of the state’ discerned by the German economist Adolph Wagner as early as 1863.3 At the same time, the importance of transfers from one social group to another tends to increase, as the budget is increasingly used as a device for the redistribution of income. In addition to public employment, the cost of publicly funded unemployment tends to rise as the proliferation of doles distorts the labour market. The gap between revenue – what the electorate is prepared to pay – and expenditure – what they expect the welfare state to provide – becomes institutionalized. It was these processes that prompted the gr
eat Austrian sociologist Joseph Schumpeter to diagnose the ‘fiscal crisis of the tax state’ more than eighty years ago.4
TAXATION AND REPRESENTATION
Ever since the time of ancient Athens, the link between taxation and political representation has been the crux of democracy, though the demos itself has been (and continues to be) variously defined. The Athens of Pericles expected the propertied class to pay for public festivals and warships, and in 428 BC introduced a property tax to help pay for the Peloponnesian War. The corollary of this was the advent of democracy (though of course only the propertied élite was represented): decisions on taxation were made by mass meetings of adult male citizens and administered by a council of five hundred.5
Conversely, undemocratic regimes prefer sources of revenue independent of popular consent. The maintenance of the royal domain as a source of Prussian revenue into the nineteenth century, for example, was part of a political strategy to preserve monarchical power. As Baron vom Stein put it:
The income from the domains is the economic foundation of the sovereign kingdom and therefore of independent internal and external state building, because the crown’s domain is the foundation of the material independence of the king against the … corporations of the estates [i.e. representative assemblies]. Hence, domains exist and will continue to exist as long as there are kingdoms.6
The difficulty, as we have seen, is that such non-consensual sources of revenue have generally proved less elastic than taxation based on consent. For that reason, it is tempting to rephrase Montesquieu: it is precisely liberty – in the sense of representative government – that permits high taxation. Or does it?
The country with the longest unbroken history of consensual taxation is England. It was during the Hundred Years War that the convention took root that the extraordinary taxation necessary to finance the conflict with France required parliamentary approval.7 Edward I may be said to have begun the practice of summoning parliaments of the crown’s lay and ecclesiastical tenants-in-chief, as well as representatives of the shires and towns. From the fourteenth century onwards the lords and later the commons begin to present ‘lists of grievances which they linked implicitly (and occasionally more explicitly) to the grants of supply’, expecting remedial legislation in return for ‘supply’. A key moment came in 1306 when the crown commuted a ‘gracious aid and tallage’ in return for a general subsidy authorized by parliament. By the middle of that century it was widely accepted that most formal legislative acts could only be made in parliament.8
The key to English constitutional development in the sixteenth and seventeenth centuries was the structural dependence of the monarch on sources of revenue controlled by parliaments: the tenth and fifteenth and the subsidy. The relative decline during the reign of Elizabeth I of the other sources of revenue which the crown controlled directly – domain income and customs – placed her Stuart successors in a position of serious weakness.9 As James VI and I put it: ‘The only disease and consumption which I can ever apprehend as likeliest to endanger me, is this eating canker of want, which being removed, I could think myself as happy in all other respects as any other King or Monarch that ever was since the birth of Christ.’10 Innovations such as ‘impositions’ on trade, forced loans, sales of monopolies or titles and purveyance tended to arouse parliamentary and judicial opposition.11 Yet there was nothing predestined about the triumph of parliament in the 1640s: Charles I’s attempt to expand extra-parliamentary sources of finance (particularly the extension of the coastal defence levy known as ‘Ship Money’ to inland counties) might well have succeeded had it not been for his expensive and unsuccessful war against the Scots. By the later 1630s Ship Money was already bringing in three times as much as parliamentary subsidies and threatened (as one parliamentarian anxiously put it) to become ‘an everlasting supply of all occasions’.12 It was Charles’s failure to keep order in his multiple kingdoms that allowed the parliamentary principle to triumph. This had been enunciated clearly enough as early as 1628 in the Petition of Right’s ‘prayer’ that ‘no man hereafter be compelled to make or yield any gift, loan, benevolence, tax or such like charge without common consent by act of parliament’. It was constitutionally secured by the ‘Glorious Revolution’ of 1688 which gave parliament the exclusive authority to raise new taxes and the right to audit government spending.13
The pattern in France was quite different, not least because the French nobility had no desire to offer the king their money as well as their counsel. As early as the late fifteenth century Sir John Fortescue was contrasting France’s dominium regale, where the sovereign could tax at will, with England’s dominium politicum et regale, where the monarch required consent to tax.14 Although Philip V (1316–22) used representative assemblies to raise tax, his inability to secure a subsidy in peacetime meant that the practice did not take root. The French Estates met again in 1355 and 1356 but, even with King John II a prisoner and a ransom demand before them, they failed to produce adequate money.15 Prior to 1789 they only met four times (in 1484, 1560–1561, 1588 and 1614–15); an Assembly of Notables was summoned twice.16 Only the parlements continued to claim and exercise a right of remonstrance and were able to exert some influence over fiscal policy by refusing to register new royal loans (as in 1784 and 1785).17
When, in 1786, Calonne advised Louis XVI to convoke an ‘Assembly of Notables’ to sanction his planned reform of royal finances – principally a new land tax – he was therefore reviving a long-dormant representative principle. Although the Assembly was supposed to be a rubber-stamp, Calonne’s decision to pack it with representatives of the clergy and nobility proved to be a miscalculation, since they at once objected to any diminution of their tax exemptions, and demanded a permanent commission of auditors to supervise royal finances as well as, crucially, the summoning of the Estates General. When Louis appointed Brienne with a brief to press ahead with the reforms regardless, he found that the parlements would not register the new taxes. Louis exiled the parlement of Paris to Troyes, but Brienne was nevertheless obliged to drop the land tax. When the King sought to force registration of new loans at a ‘Royal Session’ of the reconvened parlement on 19 November 1787 – with the hubristic and by now anachronistic words ‘it is legal because I wish it’ – the die was cast. In May 1788 the parlement asserted that taxation must have the consent of the Estates General and that they must meet regularly. On 8 August Brienne was forced to announce that the Estates General would meet the following May.18
The revolutionary import of the tax–representation nexus had also manifested itself twelve years before in Britain’s American colonies.19 The Americans were not, of course, the first people to seek independence from distant rulers in the face of taxes imposed on them without their consent; nor the last. (It was the introduction by Spain of a new property levy which prompted the Portuguese bid for independence in 1640, for example.) But the American case is the best known, not least because the causal link between the British decision to impose import duties on the thirteen American colonies and the Declaration of Independence nine years later is drummed into every American schoolchild.
It was not the amount of taxation that rankled. Indeed, in many ways it was really a tax cut elsewhere in the Empire that provoked the Boston Tea Party: the reduction of the duty on East India Company tea imported to Britain for re-export to America.20 What was at stake was a constitutional question, namely that the colonies had no say in such matters. The principle was phrased eloquently by the Whig Lord Camden in February 1766: ‘Taxation and representation are inseparable … whatever is a man’s own, is absolutely his own; no man hath a right to take it from him without his consent either expressed by himself or [his] representative; whoever attempts to do it, attempts an injury; whoever does it, commits a robbery; he throws down and destroys the distinction between liberty and slavery.’ The colonists put it more pithily: ‘Taxation without representation is tyranny.’ Yet for the colonists to raise the issue of representation in connectio
n with a duty on their external trade was from the outset revolutionary. Adam Smith’s counterfactual of giving the Americans representation in a kind of ‘states-general of the British Empire’ in return for extending the full range of British taxes to the colonies may have been logical, but that was not what the colonists were after.21 Their aim was to enhance the power of their local assemblies and ultimately – as became clear at the first Continental Congress – to give their institutions legislative parity with the Westminster parliament. But that ran counter to the doctrine of the sovereignty of parliament made sacrosanct by Sir William Blackstone’s Commentaries and affirmed by the majority of British MPs.22 The whole point of Townshend’s 1767 tea duty was that it was intended to raise revenue to pay ‘independent Salaries for the civil officers in North America’ – in other words, to make royal governors more independent of the colonists’ assemblies.23
The Cash Nexus: Money and Politics in Modern History, 1700-2000 Page 11