By The American Contemporary
Taxes; A word that strikes fear into any heart. Regardless of your political affiliation, creed, ethnicity, or morality, we are all united in our general distaste for taxes. Though we may loath them, they represent a necessary evil for any sufficiently developed state to survive. Even if a nation were to adopt a policy of rugged independence, forgoing public services such as water distribution, public roads, or emergency services, taxes would still be necessary in some capacity to pay for those who represent the state on the international stage as well as the standing army, for without this the state would cease to be. And yet, while some tribute to the state is always needed for governmental organization, the common question that arises is ‘how much is too much’. Herein, we will explore a general history of taxation as well as the trends in tax obligations over the past 100 years. Furthermore, we will discuss the fundamentalist perspective on general tax policy, specifically as it relates to the United States, and finally shall offer some perspectives on solutions to mitigate shortcomings in the tax cycle.
Before discussing modern tax policy, it would be helpful to provide some historical context which drives our current understanding of tax policy, and could provide perspective for what could be considered “just” or “fair” from a taxation perspective. Taxes have existed since ancient times, with some of the earliest records of tax-like obligations dating back to the Old Kingdoms of Egypt (prior to ~2000 BC). In this era, logistical constraints made individual taxation nearly impossible. Additionally since most Egyptians were farmers, individual taxes made little sense as profits would be substantially limited outside of occasional trade. Therefore, taxes were often levied on the communal level, on whole villages and towns collectively. Further, since they often could not contribute financially, citizens paid their dues to the state through mandatory labor service, as well as a portion of the village’s harvest. The responsibility of collecting and managing these obligations generally fell on magistrates and administrators, who would also be subjected to harsh punishment for failure to obtain the necessary state tribute. By the time of the middle kingdoms however, the improvements in record keeping coupled with additional scribes allowed leaders to better track individual ownership of land, and thus taxes were levied upon individual farms, generally based on their size and harvest value rather than the community as a whole.
The Greeks similarly made unique advancements in their Classical Period when it came to taxation. While each city state was a bit different, many cities such as Athens did not actually charge an income tax (or personal tax) to its citizens. Instead, taxes were charged to merchants at the ports, or through a 2% harbor tax on ships coming and going from Athenian ports. Real estate could be taxed, as could certain luxury items, but these taxes were sufficient to support the city while reducing the burdens of the government to track and monitor income from individuals. Interestingly however, Athens did have a contingency called the Eisphora, which was a personal tax levied upon the exceptionally wealthy, relative to their overall wealth, only to be taken in acts of extreme emergency, such as war. Wealthy individuals could in some cases get out of the Eisphora, however this tended to only occur if there was someone wealthier who instead could shoulder the burden.
Jumping ahead once more to Europe during the Middle Ages, tax policy varied greatly from state to state, however was generally tied to land. Tax exceptions were common for certain groups of people, such as nobility or clergy, and instead was restricted to peasants and common freemen. In Sweden between 1320–1363, citizens experienced a period of extremely high and extremely low taxation for the era. On the low end, farmers tended to pay taxes that amounted to about 2% of their farm’s overall value. Furthermore, this could be paid in money or through physical goods of the farm such as cheese or wheat. However, periods of warfare necessitated more financing, and thus taxes increased to roughly 15% of the value of a farm. Of course this is somewhat subjective, as individual circumstances of farm ownership as well as ownership of personal properties of peasants were somewhat dubious at the time, as was the policy with many feudal serfdoms.
Jumping ahead to slightly more modern times, in the years leading up to the American Revolution, the English Colonies in the new world were taxed slightly differently. There was no formal income tax, nor corporate or payroll tax, but instead money was earned on tariffs and excise taxes. Tariffs were extra fees imposed on imported goods which brought in additional funds and protected domestic businesses, as was often the case in mercantilist trade policies. Excise taxes in contrast were extra fees on luxury goods, such as sugar, tea, or alcohol (which we still pay today in the US, for things such as alcohol or tobacco). As England’s coffers emptied, additional fees were imposed on the colonies, such as stamp taxes, fees charged to notarize documents. But what is most interesting however is the circumstances in which the colonists found themselves relative to their English peers. American colonists were actually paid better on average compared to their counterparts in England, and paid substantially less in taxes. Furthermore, most colonial leaders, such as William Penn, had refused for moral and religious reasons to enrich himself off of the citizens who lived in his land, and thus refused to charge needless taxes. For a more detailed reporting of this, I would recommend reading an excellent article by Foreign Policy here, but suffice to say, colonial Americans lived better and were taxes less than anyone else in the western world.
Of course the tradeoff of this arrangement was that there was very little in the way of public services in the colonies. While communities generally rallied together to support each other, there was virtually no public program to maintain, protect, or serve the people. Additionally, colonists were not permitted to have a sitting member of parliament, though they could send agents to represent the colonies.
Following the American Revolution, excise taxes and tariffs remained the dominate method through which income was earned for the states, as well as the federal government. A boom in international trade, at first with German city-states, followed shortly thereafter with the far east and other European powers brought a considerable income into the states in its early years. By the 1800s, some states passed resolutions for additional personal taxes (capitation taxes), which could be passed onto all individuals irrespective of their personal property or income (a general poll tax on all voters for example), or could be a scalable tax relative to property (such as a farm ownership tax).
This all changed however during the American Civil War. Facing substantial opposition and mounting economic struggles due in part to the loss of southern agriculture, President Lincoln issued the first national tax in America to help finance the war effort (the Confederacy also had its own version of this tax, though it was less effective). The tax was short lived, and disappeared for a period during the period of reconstruction. But in 1894, Grover Cleveland issued a new national tax on Americans. This new tax was designed to only tax the extremely wealthy based on overall income (those who earned more than $4,000 per year, less than 1% of Americans at the time), and was a flat 2% on all incomes. This new tax however was struck down by the Supreme Court just a year later because it taxed individual directly, while the constitution in Article 1, Section 2 stated:
“Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons”.
Therefore, because the tax did not account for overall state population, it was illegitimate. However, it was just a few years later when Taft worked with congress to draft what would eventually turn into the 16th amendment, stating that congress could tax individuals and businesses regardless of overall state population. This amendment would eventually be ratified under Woodrow Wilson as part of the Revenue Act of 1913, which also officially began income tax as we know it today.
Within the 20th and 21st centuries, tax policy has developed into a dynamic and politically/socially contentious issue. Tax obligations evolved and grew, sometimes exponentially compared to previous century obligations. In the 1960s for example, the average income of an American family (~$5,600 annually) would have been taxed around 26%, while the upper threshold for top earners would have been a staggering 91% (for families who earned more than $400,000 per year, or over $4 million annually in 2024). The Great Depression also saw many states introduce sales taxes to bolster their coffers in the period of economic turmoil. 1916 also saw the introduction of the estate tax, a fee imposed on the transfer of assets following the death of an individual. Social Security and Medicare programs introduced in the 20th century also resulted in more obligations from both employers who were taxed on income and payroll, as well as the employee on their income.
Thus, we come to the crux of our current predicament: what is too much when it comes to taxation? The Organization for Economic Co-operation and Development (OECD) is a multinational government organization predominantly made up of European and New World states which consider and review trade policies, tax policies, and general economic trends. While they do produce and publish meaningful and helpful data, it is important to recall that these reports are made by governing officials who have a vested interest in appeasing their populations, so please do keep that in mind as we review some of their numbers (it is not that they are incorrect, but rather they are framed in a way that attempts to frame the data to their benefit). According to OECD reports, the tax-to-GDP ratio of the US was 27.7% in 2022, and although it is near its highest point, it still is dwarfed by other member countries, ranking 31st out of 38 total states (the average was 34% that year). Similarly, the 2022 tax wedge on labor income, a measure of taxes imposed on actual work and the costs of said work upon the business which employs them (which does not include things like sales or excise taxes) was 30.5% in 2022, while the OECD average was 34.6%.
Taking these numbers into consideration, coupled with data from other sources on similar developed nations, it is clear that Americans both earn more on average and are taxed less on average than many other nations. Using OECD numbers again, the French, one of the highest taxed peoples in Europe, have an average annual income of $52,764, compared to the American average of $77,463 (note that these income numbers are based on OECD calculations, which may exclude part-time work, unemployed individuals, etc.). In contrast, the French pay on average nearly 28% of their salary to income tax alone, not including other ancillary charges. Of course such a comparison is challenging as the cost of living, culture, and distributions of people could contribute to these differences, however it is still important as a demonstration of the tax obligations of the US relative to other countries.
With all this background being provided, we can now begin to analyze this situation in a more philosophical manner. While there are many potential perspectives on the issue, as always I will adopt the fundamentalist perspective. First, it is a common tactic when discussing taxes to use a comparison between two countries as a method of explaining or justifying a point. This argument however is specious, regardless if it is used to argue for more social spending or less. I will first demonstrate why this is. If, for example, we take the position that taxes are too high in the USA, a dissenting individual may argue that “France has much higher taxes compared to the US, and the average salary in the US is higher. Therefore, since we are comparatively low already, we do not need to be taxed less”. Similarly, one make the opposite argument by stating that we do not contribute enough compared to other countries for the same reasoning. While this argument is true on the surface, it presents a bad-faith comparison of two otherwise incomparable entities.
As discussed in previous essays, the fundamentalist perspective on the formation of states dictates that collective agreement of peoples during the founding of a country is what allows it to survive. Thus, the culture, options, and agreed upon obligations of the people and the state are sufficiently different that one ideal cannot be superimposed upon the other. If they could, the people of those countries would see no difference between them. As such, beyond the incomparable features of a state such as size, infrastructure, population differences, etc., there exist intrinsic differences in the culture and psychology of the people around what is and is not acceptable in the form of taxation, meaning these policies cannot truly be compared between multiple groups.
Similarly, the argument of relative tax burden to contemporary states neglects historical precedents set forth in both countries. American tax obligations in the past 200 years alone have fluctuated between virtually no taxes to upwards of 91% income tax. Meanwhile, revolutionary France may have only payed a 5% land tax, but also were obligated to pay many other taxes and fees for foods, households, mandatory rents, etc. As such, there is no true standard of what is and is not acceptable when dealing with relativism, especially between two countries. The true metric of tax obligations is instead the desires and wants of the people as it relates to the founding and operation of the country, for disunity between other group necessitates a party (be it the state or the people) to adapt their position, or the state to dissolve.
With that out of the way, let us consider the question of fair tax one final time. No longer withholding my opinion on the matter, I will assert that Americans are generally overtaxed overall. It is not in a single tax that the pilfering of American wealth occurs, but rather the nefarious distribution of cuts along the lifecycle of a dollar through which fractions of wealth bleed back to the state. Allow me to explain this a bit further. Consider a dollar earned by your employer, a business which has earned it through a service provided. When that dollar enters the company, it is taxed at the corporate tax rate (21% in 2023). Then, that dollar is passed along to payroll to be given to you as part of your salary. Before it gets to you however, it is taxed again for payroll expenses (7.65% in 2023). Once you get your paycheck, with your dollar, it is taxed in your personal income tax (15% is the most common tax bracket usually). While you may not personally notice much in the way of income loss at this point, your dollar has already been dramatically reduced, and this does not account for any local or state taxes either. Over 25% of the dollar’s value has already been taken and send back to the government, and while the employee did not bear the burden directly, it still is accounted for along the way. Of course spending the dollar comes with its own tax obligations as well. If you invest the dollar, you pay more taxes on income earned over time. If you spend it, you may have to pay sales tax on the goods you purchased. If you buy a house with it, you have to pay continued yearly taxes to keep the land, and if you passed away and left the dollar to your children, they would have to pay tax on that money as well.
At nearly every state of the economic cycle, there is some form of tax obligation. Tariffs and excise tax are also continuously present, as well as highway, fuel, and other miscellaneous taxes like soda tax. While some taxes are necessary, and history has shown a wide variety of methods of collecting over the centuries, seldom have we seen such a wide range of personal and business taxes being collected. And outside of the US, this trend can be even more oppressive (based on American standards). Value added taxation (or VAT taxes) is a flat tax issued along the supply chain in many other countries, but not in the US. At each point in the production of a product, if the value of the product is increased (selling raw material to a manufacturer, the manufacturer selling to a retailer, the retailer selling to a customer, as an example), a tax is issued. Thus, instead of a simple sales tax imposed at the point of sale, collection is taken across the whole supply chain at all points. There are very few actions which can be taken in modern times which do not involve some payment to the government, which from my perspective, is undue burden.
Now, a very fair and reasonable argument to my own is that of a return on investment. That is, we have considerably more public services and more public infrastructure. From safety enforcement to water treatment to the forestry services, the government is tasked with overseeing considerably more than in previous centuries. I concede this to be true, however I have two points of contention with this, one of which I will address now and one I will address with another potential argument. As far as public services are concerned, from the perspective of the United States, the actual obligations of the federal government (and states as well, though there is more nuance there) are extremely limited. Services and organizations such as the department of education, the ATF, or even public energy projects are all technically unconstitutional. That is to say, there is no obligation or expectation from the founding of the United States for the government to provide services such as these to the people. While it is a nice perk, and some programs may be popular with the people overall, the actual legality of these departments draws into question an overreach of federal powers over the people, and gets to my second point which I will introduce below along with another argument.
Another common argument against my point of over taxation is that public services provide a collective good that all people can use and represent a “basic right” to citizens. As such, since these new standards represent the modern equivalent of necessity (internet for example was not a necessity a the founding of the US, but is mostly essential in modern life), we should all continue through taxes so that we may collectively thrive. This is also a common argument used for socialization policies, which we will leave for another discussion. To this, I believe the most apt and sufficient counterargument is rooted in their very point. That is, their argument is rooted in providing collective services from a single source so that everyone can use them if they wish. However, in this process (and through taxation in general), money is being taken through force for services that individuals may not agree to or want. Furthermore, government solutions on average tend to be of a poorer quality and are not run well. There are countless examples of this throughout American history, extending through all sectors of life, but to choose just one, consider the disaster of Obamacare registration, where people could not get online and register for the service and were met with different terms then what was communicated. Single solutions, such as government services, create monopoly like effects in marketplaces, and negatively affect consumers. It also removes the freedom of market competition, and the opportunity to choose for yourself. Therefore, in accordance with the foundational principals of the United States, and the constitution as it stands, I believe that it is not only a superior policy for the US in general, but a more stable policy based on its history to allow individuals to retain more of their own income rather than pay it to the government. Then, citizens are free to save, spend, and invest more in both the short and long term, and no longer are obligated to make payments to as many services that they may or may not need. Furthermore, such a policy would reduce overall government burden and obligation, and could stimulate competition in the marketplace.
While it is true that people in France may “get more for their money” on paper, the fact that they are compelled to pay indicates the removal of choice and freedom. While this may work for other cultures, it is directly at odds with standard American culture, and in my opinion, is one of the major reasons tax policy remains such a contentious issue. Obligated spending breeds apathy and indifference to issues, and when collection of taxes is deemed the only way to solve a problem, an issue that persists unsolved will only ever increase overall tax obligations. I believe that keeping more money in the hands of the people would create more opportunity while reducing potential corruption and misuse of funds. As I said above, there can never exist a nation without some form of taxation. However, any country which abuses its peoples and their money will never last long. As such, to answer the question of “how much is too much”, the answer should always be, less is better.