Sales-tax Suicides through History
|June 4, 2000||Posted by Staff under Progress Report, The Progress Report|
Mason Gaffney’s Suicide List
Sales-tax Suicides through History
Now made public for the first time ever — Dr. Mason Gaffney’s personal list of “sales tax suicides”!! We have edited Dr. Gaffney’s notes slightly.
Leaders retired, peacefully or not peacefully, by voters (or other public) after they championed consumer taxes.
1. England. Charles I, 1642, deposed and decapitated.
2. England. James II, 1688, deposed, and his Stuart dynasty terminated. (Thomas Hobbes was an influential court philosopher in the later Stuart dynasty. He was the tutor of Charles II, the Restoration monarch, whose reign set the stage for the short, disastrous reign of James II. Hobbes is best known as a champion of absolute royal power, including the right to override individual rights protected by the common law. In his Leviathan, 1684, he encouraged excises, and other taxes on what he called “consumption,” banning taxes on property. John Locke, philosopher of the Whigs of 1688, was more sympathetic to property taxation, and was highly regarded by the French Physiocrats who later developed the rationale more fully.)
3. Spain. The Spanish Hapsburgs, 1504-1700 (in 1700 they were replaced by the Spanish Bourbons). There is no single date or event to mark their fall, but they presided over a disastrous drop in Spanish production, population, commerce, and military power, marked by heavy use of sales taxes (the alcavala or alcabala, and the cientos) which, together, amounted at times to 14% on the gross value of sales, often in cascade. Under Philip II, Spain declared bankruptcy three times! Spain fell from the most powerful nation in the world to a third-rate power.
4. America, George III, 1776-83, lost the colonies that became the U.S.A. The Stamp Act, and the Townshend Acts of 1767, a family of sales taxes, kicked off a long and tortuous series of events that led the colonists to conclude that George would never give up his right to tax their consumption. The “Boston Tea Party,” which triggered off the Revolution, was a symbolic protest against all sales taxes (and turned Americans into coffee drinkers).
5. France. Louis XVI, 1789-93, and Queen Marie Antoinette, guillotined. In 1776 they had foolishly fired A.R.J. Turgot, a leading administrator whose ideas paralleled those of the Physiocrats, who had tried to stop France’s dependence on sales taxes and the corvé (forced labor).
6. The Continental Congress, 1775-89. Governance under the Congress had some good features, but could not stop the separate states from imposing sales taxes on imports from each other. So Americans scrapped the Articles of Confederation, and joined together under the U.S. Constitution, containing its vital Commerce Clause giving Congress the power to regulate commerce among the states, i.e. to ban import duties by states.
The commerce clause is what created and sustains the U.S. domestic market, the largest free trade zone in the world, and the basis of our national greatness. Banning interstate tariffs also forced each state to support state and local governments from taxes on property, rather than tariffs. Not until 1930 did the states learn to tax retail sales, and even now the commerce clause holds their rates in check, by allowing competition from out of state.
7. U.S.A., 1800, the Federalist Party of George Washington and John Adams loses control of U.S. Govt., and soon dies. Alexander Hamilton, champion of Federal consumer taxes, suppressor of the Whisky Rebellion of 1794, killed by Aaron Burr in a duel, 1804. Burr, unpunished, serves out term as vice President of the U.S.
Thomas Jefferson becomes a popular icon, founding a Presidential dynasty that lasted through 1825 in direct succession (Madison, Monroe), and longer yet indirectly (J.Q. Adams, Jackson).
8. Confederate States of America, 1861-65, Jefferson Davis tries to finance the C.S.A. and secession from excise taxes. Early in the war the C.S.A. tried a federal land tax, levied on the states, who were to collect and pay it, but the Confederate states, even though fighting to survive, stood on their states’ rights, and bucked it. Meantime, the Union Feds did levy and collect such a tax, a year later (along with many others, including an income tax). There was a 10% C.S.A. tax on all farm production, paid in kind — a crushing burden on marginal farmers, who bucked the C.S.A. C.S.A. goes bankrupt, repudiates bonds and currency, loses war catastrophically.
9. Ohio, 1888, “Fire Engine” Joe Foraker lost bid for 3rd term as Gov. of Ohio, even as other Republicans won, because he had advanced a tax on saloonkeepers. Germans of Cincinnati turned vs. him: “the saloonkeepers’ rebellion.” (Cf. the Whiskey Rebellion against Hamilton, 1794.)
10. Cuba. 1895. Spain ruled, imposed high excise taxes on agriculture and mining. Tariffs favored Spain. Provoked Martí’s revolt, which led to war with U.S., loss of Cuba, Puerto Rico, Philippines, etc.
11. Russia. Nicholas II, 1914-17, loses war he cannot finance from excise taxes. 1919, shot, with his entire family, and his Romanov dynasty terminated.
12. U.S., Indiana. Albert J. Beveridge, Progressive Republican, long-time Senator from Indiana, very popular, presidential timber. Pressed for national sales tax, 1922 election, changed from a big winner to a big loser.
About the same time, President Warren Harding was calling for a national sales tax. Harding’s huge majority from 1920 evaporated away, Republicans had to consider dumping him for a 2nd term (but he died instead). Senator Robert La Follette was so encouraged, he ran for President as a Progressive, 1924, and won 4 million votes.
13. U.S., 1921-31, Andrew Mellon, Treasury Secretary under three presidents, urged taxing consumption. Mellon helped make Herbert Hoover the most beatable president in U.S. history. Democrats held the White House for 20 years after that.
14. India, 1930, Gandhi leads march to the sea in India, protesting British salt tax. 1947, Brits finally pull out. They had beaten Germany, Italy and Japan, but lost to unarmed Indians, led by a half-naked pacifist, protesting a sales tax on salt.
15. China. 1948, Chiang Kai-shek and his Kuomintang driven from China by Communists under Mao Tse-tung (Zedong). Chiang had tried to finance his government with excise taxes. Once settled in Taiwan, severely chastened, struggling to survive, Chiang finally turned to land reform and land taxation, quickly turning Taiwan into a sparkling economic development and success story.
16. Viet Nam. 1960-65, government of South Viet Nam doubled sales tax from 10% to 20%, under prodding from U.S. “experts.” Ruined nation’s commerce, while big landowners were untaxed. Viet Cong lined up against them, won peasant support. The rest is history.
17. Australia. 1975, PM Gough Whitlam is sacked by Gov.-Gen. John Kerr because Whitlam could not get budget through upper house.
1993, Federal election, governing Labour Party had become extremely unpopular (recession). Liberals could have won easily, but they endorsed GST as main plank, and lost.
18. U.S., Oregon, 1980. Congressman Al Ullman, head of U.S. House Committee on Ways and Means, started pressing for VAT. Voters of his district around Bend, in Harney County, OR, promptly retired him, 1980. Ullman saw this coming, changed his position at the 11th hour (TIME, 6 Oct 1980). It was too late. Opposition candidate Denny Smith made mileage out of Ullman’s past support for it, unseated him.
19. U.S., 1988. Twists and turns. The formula of 1988 was “austerity,” meaning we should tax (and thereby penalize) consumption, to aid capital formation. Pete Peterson’s article was most influential (“The Morning After,” Atlantic, 10/87). Peterson, an investment banker (like Andrew Mellon), was Secretary Commerce under Nixon (like Mellon under Hoover). L.H. Summers, advising Dukakis, took the same line. Voters didn’t have much choice, except that George Bush promised “no new taxes,” which to some might mean no sales tax (this was probably calculated ambiguity on Bush’s part). Meantime, VAT advocates rose to high positions under Bush, so voters may well have turned to Clinton to keep people of that mindset out of power.
20. Japan. Prime Minister Sosuke Uno of Japan, June 2 to Aug 6, 1989, just 69 days, introduced first Japanese sales tax.
Japanese economic pundits already pretend never to have heard of him, trying to trivialize the whole episode.
Prime Ministers before and after Uno:
- Nakasone Yasuhiro 82.11.27 – 87.11.6 (1806 days)
Takeshita Noboru 87.11.16 – 89.6.2 (575 days)
UNO SOSUKE 89.6.2 – 89.8.9 (69 days)
Kaifu Toshiki 89.8.10 – 91.11.5 (818 days)
Miyazawa Kiichi 91.11.5 – 93.8.5 (640 days)
21. England. Fate of Maggie Thatcher. The poll tax is what brought her down, after a good run of high popularity. A poll tax is not a sales tax, but shares its regressive nature and philosophical underpinnings.
22. New Zealand. 1990, Labour loses, after introducing a GST (“goods and services tax” against commerce).
23. Canada. Brian Mulroney, 1993, punches through a 7% “GST”, but that might as well mean General Sales Tax. Mulroney railroads GST through by appointing five new senators! Mulroney had held power for nine years, but in May, 1993, polls show Mulroney the most unpopular Prime Minister in Canadian history. He resigns and gives the hot seat to a young lady, Kim Campbell. Late October, 1993, Ms. Campbell has to call election; she and her “Progressive Conservative” Party lose catastrophically, with GST the main issue. Conservative Party goes from governing party to a minority too small to be official any more: an unprecedented rejection!
24. U.S., Montana. 1993, Montana votes down sales tax. Voter referenda on the sales tax are rare — usually the legislatures ratchet it up quietly. It went down by a heavy 3:1 margin: 75% voted no. Now that is much stronger than the Prop. 13 vote in Calif., yet the media do not play this up as an expression of voter will, as they did Prop. 13. Do the media just report on the voter will, or manipulate it? Silly question.
25. U.S., Oregon. 10 Nov 93, Oregon voters reject sales tax, 76-24%, “as voters brushed aside arguments that public schools would deteriorate without the tax.” Again, that is much stronger than the Prop. 13 vote in Calif., yet the media do not play this up as an expression of voter will.
26. Japan. PM Morihiro Hosokawa announces $49 billion income tax cut, to be replaced by raising consumption tax from 3% to 7%, as of April, 1997. Euphemism for sales tax: “people’s welfare tax.” Idea is pushed by Ichiro Ozawa, leader of Japan Renewal Party.
The U.S. had pushed for this; Treasury Secretary Lloyd Bentsen, a Democrat who favored cutting capital gains taxes at home, endorsed it. He presented it as a tax cut. Perhaps it would have been, for three years. Thenceforward it would have been an increase, says Nobuya Nemoto, economist with Nomura Research Institute.
(Bentsen presumably was more concerned with the next 3 years than anything else. He wanted to stimulate consumption in Japan, to help the U.S.)
Part of idea was to tax the elderly, retired. Japan is aging faster than any nation in the world. Interesting how people condemn property taxes for hitting the elderly retired, then turn around and champion the sales tax for doing the same thing. Is someone dealing off the bottom of the deck?
Hosokawa backs down, to keep Socialists on board. Stunning reversal. They say he had been drunk with his high approval ratings. He had also been sneaky in manner of announcing the new “people’s welfare tax.”
27. Venezuela, 1994. During 1989-1993, Carlos Andres Perez (AD party) had pushed privatization, IMF, and VAT, a package known as “Latin neo- liberalism.” He also ran a deficit = 25% of govt. budget. Inflation rate was 45% and rising. Criminal charges forced him to resign, 1993. “Corruption.”
1994, Venezuela elected Rafael Caldera, inaugurated 2 Feb 94, who campaigned against all that. Caldera called for revoking the national sales tax. Apparently the sales tax is “seen by many economists as essential to recovery” — that says something chilling about “economists” and the IMF.
Caldera won with a plurality; Perez apparently got few votes. Caldera is old; his main virtue, to some, is that he is not Andres Perez. He was Presidente, 1969-73, when oil revenues were ample.
Now new president Chavez has yet to ban the sales tax.
28. U.S., 1996, Richard Lugar, Senator from Indiana, campaigned for Republican nomination for President. Platform: abolish all Federal income taxes, institute a national sales tax. Result of his campaign: early dropout, hasn’t been heard from since. Cf. Beveridge of Indiana, 1922.
29. Ecuador, 1999. President Jamil Mahuad raises gas price, proposes raising more taxes, e.g. sales tax from 10% to 15%, for “austerity.”
Worst fiscal crisis in decades. Main export is oil, but that isn’t saving them. January 20, 2000 – army coup drives Mahuad from power.
30. Who’s next? U.S. Rep Tom Campbell (R-Cal) is running for U.S. Senate. Proposes flat 20% sales tax, end income tax (but would need sales tax rate of over 50% to be revenue-neutral). Bill Archer (R-Tx), Chair of Ways and Means, has similar proposal; but Campbell would exempt food, medicine, and “the cost of housing up to an average in a given area.” Campbell has doctorate in economics from U of Chicago. Is also a law professor at Stanford.
Mason Gaffney is Professor of Economics, University of California-Riverside.
What lesson do you draw from this? Do you know of any more examples of sales tax suicide? Tell your views to The Progress Report!