The Sociology of Taxation

By Fritz Karl Mann

TV^ODERN financial history records two fundamental changes in

the concept of taxation. While, from the 16th to the 18th
century, tax collection was considered as an expedient in times of
emergency and even an abuse which as soon as possible should be re-
placed by income derived from public property, particularly domains,
and by voluntary contributions, common opinion has gradually
acquiesced in its permanent character. Current taxation is the in-
separable twin of the modern State. This is as true for socialist as
for capitalist countries. It is significant that even Soviet Russia, in
spite of her vigorous collectivization, had to admit that the government
could be more easily financed by current compulsory contributions than
by the yield of public enterprises. After a brief diversion into the
Utopian tax-free stage during the years 1920 and 1921, she regretfully
returned, under the auspices of the New Economic Policy ( N E P ) ,
to a broad scheme of direct and indirect taxation. Moreover, the recent
suggestion of a follower of Mr. Keynes that taxation be stripped of
its traditional function since the raising of revenue "can be brought
about so much more easily by printing the money." 1 seems not to have
made any deep impression on public opinion. Except for times of
emergency and wars, governments are condemned for borrowing a
large proportion of their needs.

Still to the average mind, there is no doubt that taxation should be

appraised as a method of financing government, in other words, as a
tool of public finance. People are less aware that, in recent times,
its character underwent another important change: broadly
speaking, taxation has gradually moved from the sphere of public
finance into the sphere of sociology. More and more with conscious
intent, its fiscal function has been combined with a function of social
1 A. P. Lerner, "Functional Finance and the Federal Debt," Social Research,
No. 1 (Feb. 1943), p. 40.
225
226 THE REVIEW OF POLITICS

control. Sometimes even this combination emerged as a leonine part-

nership; for instead of being coordinated, the social function prevails
over the fiscal function.
The following discussion is focussed on three forms of social control
exercised by taxation: ( l ) correction of socially undesirable human
behavior; (2) readjustment of economic power between social groups
and classes; and (3) combatting the social abuses of capitalism and
facilitating the transition to another economic order.

I.
Since, by alternating the bitter with the sweet, political authorities
can exercise a strong power of persuasion, it is not surprising that,
at least occasionally, taxation has functioned as a tool of collective
education. With respect to the individual, taxation means a sacrifice.
It can therefore, like a fine, be utilized as a deterrent to undesirable
human behavior. A sugar coated pill, on the other side, can be
offered in the form of tax privileges granted to those social groups
or individuals who comply with a governmental program.
Tax policies designed to check a decline in population have a
venerable history. Since the early experiences of the Lex Julia et
Papia Poppaea under the Emperor Augustus, many countries have
tried to prevent an imminent depopulation by both imposing a heavier
tax burden on bachelors and granting substantial tax privileges to
married couples or those with many children. Although this positive
population policy has long been advocated by such an old democracy
as France, in our times it seems characteristic of totalitarian regimes
basing political power on the principle of coercion. In Nazi Germany,
the social effect of these measures has been augmented by the proviso
that the proceeds of the special tax on bachelors be earmarked as loan
funds for newly married couples. Under these conditions, the rewards
increase part passu with the penalties (Law for the reduction of un-
employment of June 1, 1933).
In this field at least, Fascist Italy can claim to have anticipated a
Nazi measure. LJnder the present law, in addition to the doubling of
the general income tax (I'imposta complementare), a special com-
 SOCIOLOGY OF TAXATION 227

pulsory contribution is imposed on every bachelor between 25 and

65 years. Its psychological function is indicated by a shrewd arrange-
ment of an ascending and a descending line of the tariff: bachelors
between 35 and 50 years who have no time to lose are prompted by
the highest rate, the younger class pays substantially less and the
class above 50 years, the offspring of which seems least desirable, only
55 per cent of the maximum. As in the German system, the pro-
ceeds of the tax are applied in subsidies to promote population growth
through a large national institution for the protection of maternity
and childhood.2
Other examples refer to the field of political and economic educa-
tion. In order to persuade its residents to settle down permanently
and to acquire a homestead, a country or a municipality may condition
the exercise of the voting right upon the previous payment of a tax,
say, on property or land. The poll tax in the Southern States is
rather a qualification of the voting system than a resource of state
finance. Tax pressure may be also efficient in reducing laziness and
"voluntary" unemployment. European governments anxious to ex-
ploit subtropical colonies often disliked to wait until the cultural needs
of the Negro population had developed enough to offer a broad outlet
for their products. In order to accelerate the trend, they have relied
on one or the other of two policies: either to increase purchasing
power by compulsory labor or to tax the natives to such an extent
that nobody could afford to remain unemployed.'1 Incidentally, the
psychological conception that heavy taxes are a strong incentive to
industry, prevailed for centuries in various countries. Its proponents,
like Sir William Temple (1628-1699) in England, liked to argue that,
as a rule, countries paying the heaviest taxes gradually emerge as the
wealthiest and the most powerful.4
Such an educational • program can, evidently, be supplemented in
several directions; for instance, by introducing drastic punitive taxa-
tion for those citizens who do not support the economic or social
2 Luigi Cardelli, Vademecum dei Coniribuenti alle Imposle Direite, 15th ed., Roma
1940, pp. 314-324.
3 Walter Lotz, FinanzwissenschafU Tubingen 1931, p. 274.
4 Compare also David Hume's refutation in Political Discourses, 2nd ed., Edin-
burgh 1752, pp. 115 ff ("Of Taxes").
228 THE REVIEW OF POLITICS

policies of their governments. In Soviet Russia, general compliance

with the agricultural plan has been furthered by the announcement
that an individual peasant who wilfully fails in tilling the prescribed
area of acreage or in delivering certain parts of his crop to the
government must pay the double agricultural tax.5 Similar pressure
has been exerted by the Guffey-Vinson Act, approved April 26, 1937
(50 Stat. L 72 sec. 3) under which those producers of bituminous
coal who do not accept membership in the coal code are liable for an
additional tax of 191/) per cent of the sale price of coal at the mine
or its fair market value.
Yet we may contend that the happy hunting grounds for edu-
cational tax politicians are in the area of individual consumption. By
imposing various taxes on opium and marihuana, the federal govern-
ment intended to restrict a human vice rather than to increase its
revenues. Unfortunately, some habits and passions are too deeply
rooted in human nature to be easily corrected by tax pressure. In
general, experience with taxes on gambling has been disappointing.
Their deterrent effect may have been more than offset by the realiza-
tion that a government deriving any revenue from those activities has
legalized a vice.*' However, the resourceful social politicians have
discovered other and greater opportunities. Although using a daily
spread of oleomargarine can be regarded neither as immoral nor as
physically harmful, substantial taxes raised by both the Federal govern-
ment and the states on this product have been considered as sensible,
not for financial reasons, but on the ground that the butter market
for dairy farmers deserves public protection.7 More significant, of
course, are the broad systems of taxes on .alcoholic drinks established
in many modern countries. At least it seems debatable whether high
liquor taxes may not have as salutary an effect as temperance, particu-
larly if they differentiate wisely between types of drinks. British
experience has been encouraging. It has been claimed not only that
total consumption of alcohol has been reduced, but that the system
5 Paul Haensel, "Public Finance of the Union of Soviet Socialist Republics." in:
The Tax Magazine, Oct. 1938, p. 629.
6 Similarly, Alfred G. Buehler, Public Finance, 2nd ed. New York and London
1940, p. 671.
7 William J. Shultz. American Public Finance, 3rd cd. New York 1942 pp. 275-
276; Alfred G. Buehler, op. cit. pp. 670-672.
 SOCIOLOGY OF TAXATION 229

had persuaded drinkers to shift from ardent spirits to the lighter

wines and beer. Although the change in drinking habits cannot be
attributed exclusively to a single cause, "the costliness of becoming
intoxicated" seems to have contributed substantially to the improve-
ment achieved.8 Finally, there are the numerous customs duties which
curtail or prevent the importation of foreign luxuries.
For most of the policies mentioned so far, it is characteristic that
the fiscal function of raising revenue not only has been subordinated
to the social goal, but is in contrast to it. If a special tax imposed
on the bachelor is heavy enough to persuade him to cross the Rubicon,
the fiscal yield of the tax will be zero. The same is true of the
punitive taxes on coal producers, farmers and unemployed and of
prohibitive taxes on narcotics, liquor, oleomargarine and foreign
luxuries. It could be stated as a general principle that the contribution
to the public purse is in inverse ratio to the non-fiscal result. As
emphasized in the introduction, a "leonine partnership" exists between
the fiscal and the social goal. Thus the poor financial result of such
taxes may be taken as indicative of their educational success.

II.
Taxation has been made subservient to social control in still another
area: the readjustment of economic power between the social classes.
Generally speaking, taxation can be devised for both ends, the
broadening as well as the narrowing of the "economic distance" be-
tween the ruling class and the dominated groups.
(a) In all periods of history, the ruling class has made use of the
taxing power to increase its own welfare and to strengthen its economic
position. Although we may hesitate to agree with those historians
who treat all tax privileges of the feudal system as unethical and as
political aberrations, it is evident that any exemption granted to an
individual group implies a greater burden upon the rest of the nation.
As Bacon suggested: "Quidquid alicubi adicitur alibi detrahitur."
While questioning the widely held proposition that, in France as well
as in Germany of the 18th century, the material situation of the
8 Facing the Tax Problem, New York Twentieth Century Fund, Inc., 1937, pp.
199-200.
230 THE REVIEW OF POLITICS

peasants and the bourgeoisie was in a stage of continuous decline, we

cannot escape the conclusion that the third estate failed to share
equally with the ruling class in the growth of total wealth. In its
final result, therefore, discriminatory taxation broadened the economic
distance between the higher and the lower strata of society.
(b) It is an outstanding feature of modern social history that this
tendency of the feudal period has been reversed in most countries.
Under the new conditions, another form of discriminatory taxation
has been developed: Steeply progressive tax systems have proved to
be an efficient device for levelling out existing differences in income
and wealth, in other words, for narrowing the economic distance
between the classes.
In the same connection, the scheme of a "capital levy" may be
mentioned. After World War I, ft was greatly propagandized in
European countries, particularly in Great Britain, as a magic device
to solve at once two paramount problems, the redemption of the war
debt and the equalization of wealth. Nowhere, however, has so high
a goal been reached. In Germany where the measure was advocated
as an "expiatory offering for the sins of mammonism," 9 it proved to
be a failure in the fiscal as well as in the social sense. Nevertheless,
in recent years, similar plans have again come to the fore.10
We may gather from these and other experiences that discrimina-
tory taxation can be utilized for opposite social purposes: it may
operate as both a class-lifting and a class-lowering machine.
The levelling effect of tax policies may be further intensified by
changes in the social structure of public expenditures, at least under
peace time conditions. With the rapid growth of public spending
in the fields of education, social relief and social welfare, a decreasing
rate of public outlay benefits the well-to-do and the rich, that is,
those social groups who pay the progressive income and inheritance
taxes. In other words, the progression in income-raising devices has
been supplemented by the regression in public spending.
D By Minister of Finance Matthias Erzberger.
10 See, for instance, J. R. Hicks, U. K. Hicks and L. Roslas, The Taxation of
War Wealth, Oxford 1941, p. 180 ff.
 SOCIOLOGY OF TAXATION 231

A similar result can be obtained if the group of contributors to

a public institution differs appreciably from its main beneficiaries. Such
discrepancy occurs in most modern social security systems. Since, in
the United States, old-age insurance is financed by two contributions,
the "income taxes" paid by employees and the "excises" imposed on
employers, a purchasing power stream flows from the wealthier to the
poorer classes. To some extent, income is also redistributed in those
communities where the proceeds of the property tax are earmarked for
financing public schools; for, generally, it may be assumed that the
number of families who send their children to public schools exceeds
the number of those who finance them.

Soviet Russian tax policies are amazingly rich in this type of social
control. From the Bolshevist angle, the principle of taxable capacity
needs some redefinition; it refers not only to net income, net fortune,
consumption or the subjective sacrifice imposed on the taxpayer, but
also to some class criteria. To formulate it in brief, the more remote
the social status of an individual from the genuine pattern of the
proletarian worker, the higher his taxable capacity. The bearing of
these policies may be illustrated by a few examples.11

Most significant is the structure of the personal income tax. Its

tariff is graduated according to both income and social values assigned
to professions, occupations and temporary or incidental functions.
While the normal rate is imposed on laborers and employees, it in-
creases by leaps and bounds on those activities which are viewed as
socially irrelevant or negligible. Under the new law, applicable Janu-
ary 1, 1940, "cooperated artisans," that is those handcraftsmen whose
output is regulated by and delivered to the government, pay a 10
per cent higher tax than the genuine group of "laborers" and "em-
ployees." A still heavier load is imposed on the incomes derived from
non-cooperated handicraft, from building and from agricultural work
in cities. Ostensibly, non-cooperated artisans—such as tailors who
supply their customers with clothes at order and cab drivers who use
11 See the instructive survey of Russian tax legislation by Paul Haensel. "Public
Finance in the Union of Soviet Socialist Republics," in The Tax Magazine, Sept.
through Dec. 1938, and "Recent Changes in the Soviet Tax System," in Taxes, The
Tax Magazine, Nov. 1941.
232 THE REVIEW OF POLITICS

their own horses—are viewed with greater social misgivings; for they
arc liable for an income tax 35 per cent above that of other non-
cooperated handicraft. At the top of the scale are clergymen and
other "non-labor income" earning persons, for which the addition
above the non-cooperated handicraft level is increased to 40 per cent.
A clergyman, for instance, with an annual income of 6,000 rubles
($1,200) pays 1,126 rubles, that is six and one half times the income
tax of a worker who has earned the same amount (168 rubles).
A similar discrimination permeates the whole tax system. In order
to force all Russian peasants to join the collective farms (kolkhozes),
homesteads including non-members of collective farms pay a 20 per
cent higher agricultural income tax than members of kolkhozes who
derive some private (as opposed to collective) income from cultivating
the land surrounding their homestead.12 Taxes in kind such as com-
pulsory deliveries of wool, grain, milk and livestock are graduated
according to the social status of the producer and, therefore, are
smaller for members of kolkhozes than for individual peasants. The
class standing of the taxpayer, moreover, serves as a justification for
distributing the "cult tax"—-that is a tax for housing and cultural
development in cities and rural districts—in a rather unequal way.13
The class principle has been incorporated even into the system of
insurance which, in the Soviet Union, has been monopolized by the
State and made compulsory for the most important kinds of property.
It may, thus, be considered as a variant of hidden taxation. Insurance
premiums are differentiated according to the social status: while
kolkhozes make the lowest contribution, their members who insure their
personal property must pay a higher rate and individual toiling peasants

III.
A last group of tax policies to be analyzed from a sociological
angle aims at the control of economic organization. Many such poli-
cies are imbued with a conservative spirit. They are designed to
12 Paul Haensel, in Taxes, The Tax Magazine, Nov. 1941, pp. 678-679.
13 Idem., in The Tax Magazine, Oct. 1938, pp. 594, 629, 630.
14 Ibid., Dec. 1938, p. 759.
 SOCIOLOGY OF TAXATION 233

restore or to reinforce those rules of the game which obtain under a free
enterprise system by correcting and curbing inimical organizational
trends. This regulatory function has been particularly prominent in
modern business taxation.

While the growth of taxes on corporations must be explained partly

by the relative ease with which large amounts can be derived from
this broad source, one would hesitate to appraise it exclusively from the
viewpoint of fiscal needs. Like the classical school, modern individua-
listic economists are consistent in fighting corporations in principle
because of their interference with free competition. Their criticism
turns mainly against the large corporations since, as President Roose-
velt stated in his message of June 19, 1935, "size begets monopoly."
Although the fact of double taxation raises serious questions, taxes on
Torporations have been advocated as a brake on the further concentra-
tion of economic power. Only from a social angle, is it sensible to
justify the extension of the principle of progression, as used in personal
income taxation, to corporations. It is fallacious to contend that the
taxable capacity of a corporation—if such an idea can be conceived
at all, as independent of the taxable capacity of individuals—should
be measured by the absolute amount of its earnings. Neither should
we believe that, in general, small and unsuccessful corporations are
owned by poor people and large and profitable corporations by wealdiy
men. Progressive rates, therefore, are arbitrary unless "it is con-
sidered good policy to encourage small corporations and to discourage
large ones." 1 5

To a higher degree, taxes on chain stores and holding companies

are genuine types of punitive taxation. As a revenue measure, chain
store taxes are unimportant. Their paramount goal is to hamper the
chains in their competition with independent dealers, if not to tax the
largest of them out of existence. This deadly function has been
rendered more conspicuous by some laws which graduate the tax by
the number of chain outlets in a state or in the entire country.

15 See "Report of the Committee of the National Tax Association on Federal Tax-
ation on Corporations," in: Proceedings of the National Tax Association, Columbia,
S. C. 1940, p. 570.
234 THE REVIEW OF POLITICS

While the results of this campaign lag far behind die naive expecta-
tions of their sponsors, a greater success was scored in the fight against
personal holding companies. As an authority in tax law recently
stated, "personal holding companies, foreign and domestic, have been
so burdened with additional taxes and restrictions, that no one would
advocate the formation of one nowadays." 1 6
Still we should not conclude from these and similar developments
that, by their very nature, taxes are confined to the modest role of
curbing and correcting some undesirable trends of the capitalistic econ-
omy. At least in principle, they may be used for a revolutionary
program.
Suppose diat the budget is continually overbalanced by increasing
taxation beyond current needs. Under these conditions, capital other-
wise invested by business men accumulates in the hands of die govern-
ment. The public sector expands to the detriment of the private sector
of the economy.
Yet it must not be concluded that every confiscatory tax is designed
to perform this revolutionary task. As long as the proceeds of steeply
progressive taxes on income, property and inheritance are applied to
current expenditures, their social effect may be restricted to the equali-
zation of income and wealth. Even the realization of Henry George's
program to confiscate die entire land rent on behalf of the community-
would not endanger the foundation of the capitalistic system. Most
of die traditional character of our economy could be maintained, par-
ticularly since the tax on rent is to be substituted for all existing taxes.
Only in combination with a sequence of budget surpluses may confisca-
tory taxation become an instrument of state socialism. The well-known
Rignano plan may be cited in illustration.
Politically, the scheme is conspicuous by its attempt to secure the
approval of the socialists without hurting die feelings of individualists.
Its sponsor, the late Italian sociologist Eugenio Rignano, considered
it a reconciliation of liberalism and socialism. Ostensibly, this was
the motive for die lengthy title of his main work: Di un socialismo in
accordo colla dottrina economica liberate (Torino, 1901). Rignano
16 Roswell Magill, The Impact of Federal Taxes, New York 1943, p. 169.
 SOCIOLOGY OF TAXATION 235

proposed to change the economic organization by a novel device in

the field of inheritance taxation.
Its main characteristic is not the high rate, but the differentiation
between saved and inherited wealth or between property of new and
old stock. In order to maintain the incentive to capital formation and
to stimulate thrift, wealth accumulated by the effort and saving of
the testator is subject only to the former modest inheritance tax. How-
ever, the same estate or a portion of it, left by the son to the grand-
son, should be halved: fifty per cent is to be paid to the government.
Finally, if the grandson, at his death, still owns any portion of that
property, he is unable to leave it to his children or any other heirs or
beneficiaries; for, now, the government is entitled to claim a hundred
per cent. In other words, the tax rate rises rapidly widi the relative
age of the estate. At the third transmission, the tax is equivalent to
confiscation. Thus, automatically, an increasing proportion of private
wealth, far beyond fiscal needs, is bound to accrue to the State. Accord-
ing to Rignano, this is "the sole way to achieve an effective and gradual
nationalization of private capital without injuring the delicate mechan-
ism of economic production." l7

This naive plan has attracted more attention than it deserves.

Professor Rignano's "ingenious suggestion" has been praised by great
authorities in the field. Even the majority of the British Colwyn
Committee, after a careful analysis, found "the principle in itself
attractive" and suggested "that it may in course of time have useful
developments." 18 This is not the place to appraise thoroughly the
merits and the demerits of the scheme or of some of its variants. To
us, the Rignano plan is significant from another more general angle:
it visualizes a turn in mind—the growing inclination to think, in our
times, in terms of the sociology of taxation.
17 See the British edition of the plan: The Social Significance of Death Duties,
adapted from Dr. Shultz's translation from the Italian of Eugenio Rignano by Sir
Josiah Stamp, London, (without date), p. 50. Compare my book: Steuerpolitische Ideale.
Vergleichende Studien zur Ceschichte der bfconomischen und politischen ldeen und ihres
Wirkens in der offenilichen Meimrng 1600-1935, Jena 1937, pp. 320-322; also,
the dissertation of my former assistant Dr. Bruno Antweiler, Erbschaftssteuer und
Soziale Reform. Kritische Beirachlungen anlasslich des Rignanoplanes, Wiirzburg 1933.
18 Report of the Committee on National Debt and Taxation, Cmd. 2800, London
1927, p. 316.