The Economics of Progressive Taxation
BRUCE BARTLETT
THEPROGRESSIVE, or graduated, income tax
is a relatively recent phenomenon in his-
tory. It was instituted in the United States
in 1913 with passage of the 16th Amend-
ment to the Constitution.' These first pro-
gressive tax rates set a tax on individual
income of one percent at the bottom (be-
ginning at $3,000-a high income in those
days) and seven percent at the top (start-
ing at $500,000). Today, income tax rates
in all countries are steeply graduated and
have very high maximum rates. In the
United States income tax rates have been
as high as 91 percent as recently as 1963.
In 1977 the highest tax rate was 70 per-
cent on incomes above $100,000, and the
lowest rate was 14 percent on incomes be-
low $500 per year.2 This does not mean that
everyone earning more than $100,000 pays
70 percent of his income in taxes. This is
the marginal tax rate, the rate of taxation
applied to each additional dollar earned
above $100,000. Thus, when one computes
the average, or effective tax rate (the per-
centage of tax actually paid to income) one
finds that tax rates vary considerably even
within income classes. But it is the mar-
ginal tax rate which affects all economic de-
cisions, regardless of what the effective tax
rate may be. This simple fact is the cause
of enormous confusion about our tax sys-
tem, and the reason why the type of taxa-
tion imposed on the economy is just as im-
portant as the amount.3
The most clear and obvious effect of
steeply progressive marginal tax rates on
the economy is a reduction in the incen-
tive to earn additional income. This fact
was aptly expressed by President Calvin
Coolidge in a speech on February 12, 1924:
A very important social and economic
question is also involved in high tax
rates. That is the result taxation has
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.
upon national development. . . If we
had a tax whereby on the first working
day the Government took 5 percent of
your wages, on the second day 10 per-
cent, on the third day 20 percent, on the
fourth day 30 percent, on the fifth day
50 percent, and on the sixth day 60 per-
cent, how many of you would continue
to work on the last two days of the
week?4
Coolidge thought that the answer was self-
evident and therefore proposed a reduction
in the high surtax rates which had been im-
posed during World War I, which went as
high as 77, to a maximum of 25 percent.
This massive tax rate reduction took effect
in 1925, over much protest from liberals,
and was certainly an important factor in
the economic boom of the 1920's.5 The
only time tax rates were again reduced on
such a scale was during the early 1960's,
under the leadership of President John F.
Kennedy and House Ways and Means Com-
mittee Chairman Wilbur Mills, in which
the high World War I1 tax rates were fi-
nally reduced. These rates are essentially
still in effect.
High marginal tax rates reduce the
trade-off between work and leisure. This is
called the substitution effect and is recog-
nized by virtually every writer on the sub-
ject oE taxation? There is serious disagree-
ment, however, on the extent to which the
substitution effect actually reduces the total
volume of work. It is pointed out that there
is also an opposite force at work called the
incomes effect, which says that people will
work harder as marginaI tax rates go up b e
cause they want to maintain a given level
of aftertax income.' The net loss to the
economy is therefore considered minimal.8
But although the substitution effect and the
incomes effect may balance each other off
285
in terms of aggregate work effort there are
other, more qualitative factors to be con-
sidered.
The most important qualitative effect of
progressive taxation is the depressing effect
of high marginal tax rates on inventive-
ness, innovation, risk-taking, and entre-
preneurship. Such qualities are clearly vital
if civilization is to advance? This is a mat-
ter which is intimately connected to the
problem of capital formation and saving,
for unless one can accumulate some capital
an individual will never have any leisure
with which to pursue innovation. As Lord
Robbins put it:
The fact that it has become so difficult
to accumulate even a comparatively small
fortune must have the most profound
effects on the organization of business;
and it is by no means clear to me that
these results are in the social interest.
Must not the inevitable consequences of
all this be that it will become more and
more difficult for innovation to develop
save within the ambit of established cor-
porate enterprise, and that more and
more of what accumulation takes place
will take place within the large concerns
which-largely as a result of individual
enterprise in the past-managed to get
started before the ice age descended?1°
This inherent conservatism and suppression
of innovation caused by the progressive tax
system is, perhaps, its single most detri-
mental effect on the economy in the long
run. It may, in fact, go a long way toward
explaining the so-called lack of investment
opportunity which concerned economists
like Joseph Schumpeter greatly and which
is still discussed today.” As Ludwig von
Mises has pointed out, it is not simply the
stifling of individual innovation which is
critical but the prevention of small busi-
nesses from ever becoming big businesses
which is at issue. This is because “wind-
fall” profits are taxed at such high rates
that they cannot provide seed money or ex-
pansion capital to an entrepreneur who has
seized the opportunity for a temporary high
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profit. The result is a quasi-monopoly situa-
tion in which the tax system protects exist-
ing companies from innovative newcomers.
Every ingenious man is free to start
new business projects. He may be poor,
his funds may be modest and most of
them may be borrowed. But if he fills
the wants of consumers in the best and
cheapest way, he will succeed by means
of “excessive” profits. He ploughs back
the greater part of his profits into his
business, thus making it grow rapidly.
It is the activity of such enterprising
parvenus that provides the market econ-
omy with its ‘Ldynamism.” These nou-
veaux riches are the harbingers of eco-
nomic improvement. Their threatening
competition forces the old firms and big
corporations either to adjust their con-
duct to the best possible service to the
public or go out of business.
But today taxes often absorb the
greater part of the newcomer’s “exces-
sive” profits. He cannot accumulate
capital; he cannot expand his own busi-
ness; he will never become big business
and a match for the vested interests.
The old firms do not need to fear his
competition ; they are sheltered by the
tax collector. They may with impunity
indulge in routine, they may defy the
wishes of the public and become con-
servative. It is true, the income tax pre-
vents them, too, from accumulating any
capital. They are virtually privileged by
the tax system. In this sense progressive
taxation checks economic progress and
makes for rigidity?*
What better examples can we have from the
business world than the Ford Motor Com-
pany and US. Steel Corporation of the
consequences just noted? There is no doubt
whatsoever that the Ford Motor Company
never would have grown to be one of the
largest corporations in America if the tax
system had prevented Henry Ford from
ploughing the largest portion of his profits
back into the company for expansion dur-
ing the 1920’s. And the present example of
Summer 1978
 US. Steel, which was the first billion dol-
lar corporation in America, is the essence
of a stagnating, conservative company
which was protected by the tax system and
other government regulations for so long
that it is still operating virtually unchanged
from fifty years ago. This is true of many
large corporations in America, especially
in older industries like steel and automo-
biles, which are being cut to shreds on in-
ternational markets by aggressive competi-
tors from Germany, Japan and elsewhere.
Predictably, these corporations have failed
to recognize the fundamental causes of
their problems and called for tariffs to fur-
ther protect and insulate them from the
rigors of competition.13
As noted earlier, the question of innova-
tion is intimately connected to the problem
of risk-taking and the accumulation of capi-
tal. In this sense, progressive taxation alters
the trade-off between investment and con-
sumption just as it alters the trade-off be-
tween work and leisure. Risky investments
which formerly would be undertaken for
the prospect of a high return are not under-
taken when taxation robs investors of that
incentive.14 This is different from talking
about the effects of progressive taxation on
aggregate savings and investment. As Ar-
thur Okun has noted, society can have what-
ever amount of saving-that is, foregone
consumption-that it wants. All the govern-
ment has to do is force people to save by
running a budget surplus, although it is rec-
ognized that if this involves an increase in
taxes it will result in a corresponding re-
duction in private saving.15 And even M i s e
has written about the forced savings aspect
of inflation, which would be another way
of accomplishing the same purpose.16 The
point is, however, that the character of the
capital so accumulated and the manner in
whioh it affects the economy is funda-
mentally different from that which would
result in an unhampered market. In partic-
ular, the system becomes biased against
equity capital in favor of debt capital.
Equity capital is actual ownership, in the
form of stock, and the traditional means of
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raising “risk” capital. Debt capital, on the
other hand, in the form of loans or bonds,
is necessarily conservative in nature, being
generally available only to large, estab-
lished corporations rather than small, inno-
vative companies. Thus, once again, we see
a bias against innovation and entrepreneur-
ship.’?
What we are essentially talking about
here is the misdirection of scarce resources
resulting from the tax system. This is every
bit as important as the misdirection of re-
sources resulting from inflation, which has
received far more attention from free mar-
ket economists28 The most obvious aspect
of this effect is the misdirection of resources
from investments which yield high gross
profits into investments which yield high
net (after tax) profits, such as tax-free
municipal bonds.ls Professor Martin J.
Bailey has calculated that the distortion of
investment caused by the misdirection of
capital into areas dictated by the tax code
has reduced the gross national product sig-
nificantly from what it would otherwise
beJOThis supports the a priori notion that
any deviation from economic decisions
which would have taken place in an un-
hampered market is ultimately subopti-
mal.Z1 A simple way of seeing how this mis-
direction takes place is to note that if the
marginal tax rate is 25 percent an invest-
ment which yields a tax free profit of eight
percent is preferable to an investment
which yields 10 percent before tax. And if
the marginal tax rate is more than 50 per-
cent it is more profitable to find a means
of saving $1.00 in tax than earning $1.00
of additional gross income.
Indeed, much of what is contained in the
current tax code was put there precisely to
compensate for other portions of the code
which either suppressed or overstimulated
some economic activity. For example, the
investment tax credit, which allows com-
panies to deduct ten percent of an invest-
ment in new plant and equipment from its
tax liability the year the investment is
made, was clearly instituted as an indirect
means of cutting the corporate tax rate. But
287
in the process it biased the tax code in
favor of machinery, against labor, which
is not necessarily in the best interest of the
economy.22These sorts of things abound in
the tax code and all have perfectly justifi-
able reasons for existence.:: Yet they would
all be largely superfluous if individual and
corporate income tax rates were much
lower. The complication which is now con-
tained in the tax code as the result of all
the exemptions, exclusions, deductions and
credits which only exist in order to lower
the effective tax rate, eventually becomes
an additional source of misdirection in it-
self. And the largest part of this complica-
tion is directly attributable to progressivity.
As Blum and Kalven have written:
It is remarkable how much of the day
to day work of the lawyer in the income
tax field derives from the simple fact
that the tax is progressive. Perhaps the
majority of his problems are either
caused or aggravated by that fact. . . .
The price the tax system pays for pro-
gression is thus high. It produces a tax
iaw of aImost impenetrable complexity.
It invites a distorting attention to the tax
aspects of any economic transaction. It
affords an excessive stimulus to tax
avoidance with perhaps incalculable
consequences for taxpayer morale and
the general respect for law.z4
The argument against progressive taxa-
tion on grounds of pure economics or
efficiency thus seems to be very strong.
But the ethical case may be even stronger.
One of the earliest and most eloquent ex-
pressions of the ethical case against pro-
gressivity was made by Professor J. R. MC-
Culloch in 1863 in his Treatise on the
Principles and Practical Influence of
Taxation and the Funding System:
The moment you abandon, in the
framing of such taxes, the cardinal prin-
ciple of exacting from all individuals
the same proportion of their income or
property, you are at sea without a rud-
der or compass, and there is no amount
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of injustice or folly you may not com-
mit.25
McCulloch’s admonition basically echoes
the traditional republican distrust of de-
mocracy. Such views, as expressed in The
Federalist Papers (especially Federalist
#lo) or Mill’s On Liberty, argued that un-
less certain fundamental rights are safe-
guarded in a democracy there is a danger
that the majority may tyrannize the minor-
ity. Bertrand de Jouvenel has noted the
importance of progressive taxation in divid-
ing the ranks of taxpayers into factions,
in this respect. Previously, taxpayers had
been the preponderate majority, while the
recipients of government favors were rela-
tively few. Consequently, taxpayers were
united in opposing unnecessary government
spending at all times, by revolution if
necessary. In fact, de Jouvenel credits the
dislike of taxation as the primary means
of turning subjects into citizens.26 But the
taxpayers’ ranks were broken by the insti-
tution of progressive taxation and the de-
velopment of income redistribution on a
large scale. Thus today those receiving the
benefits of government spending programs
may outnumber those who pay for them.2‘
Income redistribution and progressive
taxation are virtually synonymous. Indeed,
the equity argument is undoubtedly the
single most important justification for pro-
gressivity. Although there are any number
of justifications for progressivity based on
ability to pay, equal sacrifice, the diminish-
ing marginal utility of money, etc., in the
end equity is the only justification worth
seriously considering.** As H. C. Simons
wrote in dismissing all nonegalitarian
arguments for progressivity :
The case for drastic progression in
taxation must be rested on the case
against inequality-on the ethical or
aesthetic judgment that the prevailing
distribution of wealth and income re-
veals a degree (and/or kind) of inequal-
ity which is distinctly evil or unlovely.2B
The problem is, as Friedrich Hayek has
Summer 1978
noted, “that all arguments in support of
progression can be used to justify any de-
gree of progre~sion.”~~ Thus the ultimate
danger is not that progressive taxation is
harmful to the economy but that it is a
significant danger to individual liberty.
I n this vein Hilaire Belloc has defined the
servile state as:
That arrangement of society in which
so considerable a number of the families
and individuals are constrained by posi-
tive law to labor for the advantage of
other families and individuals as to
stamp the whole community with the
mark of such labor we caU the servile
state?l
Of course, a high level of taxation,
whether it be progressive or proportional,
would tend to produce the same results.
As Professor Robert Nozick has argued,
to the extent that taxation exists at all we
are all slaves to that extent. In his book,
Anarchy, State, and Utopia. he wrote :
Seizing the results of someone’s labor
is equivalent to seizing hours from him
and directing him to carry on various
activities. If peopIe force you to do cer-
tain work, or unrewarded work, for a
certain period time, they decide what
you are to do and what purposes your
work is to serve apart from your deci-
sions. This process whereby they can
take this decision from you makes them
a part-owner of you; it gives them a
property right in you. Just as having
such partial control and power of deci-
sion, by right, over an animal or inani-
mate object would be to have a property
right in it.S2
Nevertheless, there is someting especially
onerous about a tax system which is de-
signed solely for the purpose of redistribu-
ting income, rather than simply raising
revenue. It is a well-known fact, for
example, that a flat rate of about 21 percent
(21.6 percent exactly in 1974) would raise
the same revenue as all the rates from 14
to 70 percent. Consequently, there is con-
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siderable leeway for tax rate reduction even
at present spending levels without a signif-
icant loss of revenue. In fact, a tax rate
reduction can actually lead to an increase
in government tax revenues. This seeming
paradox is explained by the earlier men-
tioned trade-offs between work and leisure,
investment and consumption. These trade-
offs, which high progressive tax rates bias
in favor of leisure and consumption against
work and investment, would be substan-
tially reduced. Hence, there would be an
increase in investment and work effort
throughout the economy which will expand
the tax base and thereby increase revenues.
Another way this works is that substantial
tax rate reduction will reduce the trade-off
between investments with a higher gross
profit and those with a higher net profit. In
this sense it will automatically draw inves-
tors out of tax shelters, like municipal
bonds, and eliminate some of the misdirec-
tion of capital resources. And lastly, a sub-
stantial tax rate reduction will reduce the
incentive to cheat on one’s taxes. In coun-
tries like Great Britain, where marginal
tax rates are much higher than those in the
United States, tax cheating proliferate^.^^
As previously noted, this affects not only
the tax base but contributes to the moral
breakdown of society, as respect for law
diminishes.
Andrew Mellon, while Secretary of the
Treasury under Harding and Coolidge,
made these points over and over again to
justify tax rate reduction. In his book,
Taxation: The People’s Business, he wrote:
”he history of taxation shows that
taxes which are inherently excessive are
not paid. The high rates inevitably put
pressure upon the taxpayer to withdraw
his capital from productive business and
invest it in tax-exempt securities or find
other lawful methods of avoiding the
realization of taxable income. The result
is that the sources of taxation are drying
up; wealth is failing to carry its share
of the tax burden; and capital is be-
ing diverted into channels which yield
289
 neither revenues to the Government nor
- profit -to the 'peopk. .< . What rates will
- bring in the largest revenue to the
Government experience has not yet de-
veloped, but it is estimated that by cut-
ting the surtaxes in half, the Govern-
ment, when the full effect of the reduc-
tion is felt, will receive more revenue
from the owners of large incomes at the
lower rates of tax than it would have
received at the higher rates. ... just as
Mr. Ford makes more money out of pric-
ing cars at $380 than at $3,000.5*
Mellon was quite emphatic on the point
that tax rates which are formulated during
wartime, when maximum sacrifice is de-
manded, should not be perpetuated after
the emergency has ceased. Although Mellon
was ultimately successful in reducing the
World War I tax rates, it was not at all as
easy as one might expect. In fact,
progressive tax rate systems have historical-
ly arisen during wartime and rarely ever
been eliminated thereafter. As Bertrand de
jouve'ltf: put it;
When war demanded a huge increase
in the rate of income tax, this became
quite unbearable for the poorer taxpay-
ers, and deductions and allowances were
necessary ; these were compensated by
an increasing steepness of surtax. Thus
the very steepness of taxation made
necessary a difference of treatment be-
tween the different income classes.
When, at the end of the war, the State
retained part of its taxation gains, it
excused its avidity by providing net ad-
vantages out o€ taxation to the un-
favoured mass. Thus a great increase in
state takings and expenditure was made
tolerable to the majority by some mea-
sure of redistrib~tion.~~
The redistribution which arises from
progressive taxation, therefore, soon builds
constituencies among those receiving the
benefits. There are also those who favor
high progressive tax rates because they are
envious of those with high incomes and
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wish to punish them for this reason. One
may scoff that envy cannot possibly be of
much significance, yet its importance in
supporting the progressive tax rate system
has heen widely noted.3B I t is, perhaps,
easier to accept when you realize that all
the tax rates from fifty percent and up pro-
duce only about eight percent of individual
income tax revenues (about $9 billion in
1973). Nevertheless, the highest tax rates
do serve an important revenue function by
justifying higher rates of taxation on all
taxpayers than they would otherwise peace-
fully accept. To quote Friedrich Hayek:
The illusion that by some means of
progressive taxation the burden can be
shifted substantially onto the shoulders
of the wealthy has been the chief reason
why taxation has increased as fast as it
has done and that, under the influence
of this illusion, the masses have come to
accept a much heavier load than they
would have done otherwise. The only
major result of the policy has been the
E ~ B P ~ !imitatinr!
P nf the incomes that
could be earned by the most successful
and thereby gratification of the envy of
the less well off?'
Another important support for progres-
sive taxation and high tax rates in general
comes from those institutions that depend
on voluntary contributions (motivated by
the prospect of tax deductions) for their
existence. This group, which includes
churches, foundations, universities and
charities of all kinds, believes that if tax
rates were reduced-especially on high in-
comes-people would be less motivated to
contribute and that they would suffer finan-
~ i a l l y . ~Although
* this attitude ignores the
fact that high tax rates also reduce the dis-
posable income of people who would other-
wise contribute and that lower tax rates
would do the reverse, the view is widely
held that a reduction in tax rates would
reduce charitable contributions. In fact,
Wilbur Mills, who was for many years
chairman of the powerful House Ways and
Means Committee, which is responsible for
Summer 1978
all tax legislation, recently told an audience
in Washington that these institutions were
the single most vocal group opposed to a
plan he once had to eliminate a large num-
ber of “loopholes” and lower tax rates
proportionately. Because of their protest
that contributions would fall he was forced
to drop the ~ l a n . 3 ~
Lastly, inflation creates a powerful vested
interest in the government to continue pro-
gressive tax rates. This is because steeply
graduated tax rates guarantee that tax reve-
nues will go up faster than inflation, as
inflation pushes taxpayers up into higher
and higher tax brackets, even though their
real income may be unchanged. Inflation
also overstates business profits by under-
stating business costs, especially deprecia-
tion, thereby requiring taxes to be paid on
illusory profits. Thus suppose an individual
invested $1,000 and a t the end of a year
had made $100 in nominal profit. If infla-
tion has gone up ten percent there is no
profit at all in real terms. Nevertheless the
government will require taxes to be paid
on the $100 “profit.” This will result in
a net loss to the investor.
The government knows that inflation is
increasing effective tax rates throughout the
economy on both individuals and business-
es. In fact, the Congressional Budget Office
calculates that the present progressivity of
the income tax causes tax revenues to go
up 1.5 percent for every one percent in-
crease in inflation!O This is sometimes
referred to as a “fiscal dividend” which the
government can then use to initiate new
spending programs without explicitly in-
’For the history and purpose of this amend-
ment see The Constitution of the United States:
Analysis and lnterpretation (Washington: US.
Government Printing Office, 19731, pp. 370-4,
1553-64; see also Walter J. Blum and Harry
Kalven, The Uneasy Case for Progressive Tax-
ation (Chicago: University of Chicago Press,
19531, pp. 6-11. T h e Tax Reform Act of 1969
set a maximum tax rate of 50 percent on
“earned” income. D a n Throop Smith, “High
Progressive Tax Rates: Inequality and Immo-
rality?” University of Florida Law Review
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creasing tax rates?l And even when the
Congress does decide to return these reve-
nues to the people in the form of tax reduc-
tion it is almost never done by reducing
the rates. Instead it initiates tax credits
or larger personal exemptions which will
reduce taxes only for those in lower income
brackets, thereby increasing overall pro-
gressivity. The result is that many middle-
income taxpayers are in marginal tax
brackets once reserved for the “rich.” It is,
for example, estimated that in the early
1960’s only three percent of all taxpayers
were affected by marginal tax rates of more
than thirty percent. Today more than one-
third of all taxpayers are affected by such
rates, and this takes into consideration only
federal income taxes. If Social Security,
unemployment insurance, state and local
taxes are also figured in some taxpayers
earning as little as $12,000 per year would
find themselves paying fifty percent or
more tax on each additional dollar earned.
This is the kind of thing which has reduced
economic growth in Great Britain and
Sweden to a standstill?*
In the early 1950’s Professors Walter
Blum and Harry Kalven of the University
of Chicago Law School undertook an im-
partial examination of progressive taxa-
tion and concluded “The case for progres-
sion¶ after a long critical look, thus turns
out to be stubborn but uneasy.” It is, per-
haps, an indication of changing times that
a prominent economist, Dr. Norman Ture,
recently said of progressive taxation: “For
the economist qua economist, the case is not
uneasy; it is virtually n~nexistent.”~~
(Spring 19681, p. 456. ‘Quoted in Andrew Mel-
Ion, Taxation: The People’s Business (New York:
Macmillan, 19241, p. 222. ‘Interestingly, the high
progressive tax rates imposed in Wisconsin dur-
ing the 1920’s caused the state’s economy to lan-
guish while the rest of the country boomed; see
W. Elliott Brownlee, Jr., Progressivism and Eco-
nomic Growth: The Visconsin Income Tax, 1911-
1929 (Port Washington, NY: Kennikat Press,
1074). ‘See, for example. H. C. Simons, Personal
Income Tazation (Chicago: University of Chica-
go Press, 19381, pp. 19 ff.; Richard Goode, The
291
lndividwl Income Tux (Washington: The Brook-
ings Institution, 19751, pp. 96-98. ‘Arthur Okun,
Equality und Eficiency: The Big Trade-off
(Washington: The Brookings Institution, 19751,
pp. 96-58. *George F. Break, “The Incidence and
Economic Effects of Taxation,” in The Economics
of Public Finance (Washington: The Brookings
Institution, 1974), pp. 179-91; Blum and Kalven,
Uneasy Case, pp. 22-23. ‘Bertrand de Jouvenel,
The Ethics of Redistribution (London: Cam-
bridge University Press, 19511, pp. 58-9; Carroll
Quigley, The Evolution of Civilization (New
York: Macmillan, 19611, pp. 69-73. mLionel
(Lord) Robbins, “Notes on Public Finance,”
Lloyds Bank Review (October 19551, p. 10. uJo-
seph Schumpeter, Capitalism, Socialism and De-
mocracy (New York: Harper & Row, 19501, pp,
111-120; see also any current discussion of the
shortfall in capital spending, such as Leonard
Silk, “Lagging Capital Spending and Investment
Incentives,” New York Times (October 17. 1977).
-Ludwig von Mises, Human Action (New Haven:
Yale University Press, 1949), pp. 804-5; see also
Friedrich Hayek, The Constitution of Liberty
(Chicago: University of Chicago Press, 19601,
pp. 320-1; Milton Friedman, Capitalism and
Freedom (Chicago: University of Chicago Press,
19621, p. 173. “David Ignatius, “US. Steelmak-
ers Fail to Modernize Quickly, Fall Behind Jap-
anese,’’ Fall Street Journal (August 3, 1977).
“Blum and Kalven, Uneasy Case, pp. 23-5. “Okun,
Equality and Zljiciency, pp. 98-iOO. “‘Mises, 20-
man Action, pp. 545-7, 553-5. “Joseph A. Pech-
man, Federal Tax Policy (Washington The
Brookings Institution, 1977), pp. 139-40; Blum
and Kalven, Uneasy Case, p. 25. =Ludwig von
Mises, The Theory of Money and Credit (New
Haven: Yale University Press, 1953) ; Friedrich
Hayek, Prices and Production (New York: Au-
gustus M. Kelly, 1941). ‘‘Smith, “Tax Rates,”
pp. 457-60; see also Mellon, Taxation, pp. 13ff.
%artin J. Bailey, “Progressivity and Investment
Yields Under U S . Income Taxation,” Journal of
Political Economy 82 (1974), pp. 1157-75. ”See
Mises, Human Action. =Wage inflation does the
same thing; see Friedrich Hayek, “The Ricardo
Effect,” Economica (May 1942), pp. 127-52.
“Roger Freeman, Tax Loopholes (Washington:
American Enterprise Institute, 1973). mBlum and
Kalven, Uneasy Case, pp. 15, 18-19; see also W.
Allen Wallis, “The Case for Progressive Taxa-
tion: Easy or Uneasy?” in Colin D. Campbell,
ed., Income Redistribution (Washington: Amer-
ican Enterprise Institute, 1977). pp. 139-44:
Charles 0. Galvin and Boris Bittker, The Income
Tax: How Progressive Should It Be? (Washing
ton: American Enterprise Institute, 19691, pp.
16-19. “J. R. McCulloch, A Treatise on the Prin-
ciples and Practical Influence of Taxation and
the Funding System (London: Scottish Academic
292
LICENSED TO UNZ.ORG
ELECTRONIC REPRODUCTION PROHIBITED
Press, 19751, p. 147. We Jouvenel, Ethics, p. 75.
”Roger Freeman, The Growth of American GO>
ernment (Stanford, CA: Hoover Institution Press,
1975). “For a summary of economic theories in
support of progressivity see Elmer Fagan, “Re-
cent and Contemporary Theories of Progressive
Taxation,” Journal of Political Economy 46 (Au-
gust 19381, pp. 457-98. “Simons, Personal Income
Taxation, pp. 18.19. “Hayek, Constitution, p. 313.
”Hilaire Belloc, The Servile State [19131 (Indi-
anapolis: Liberty Classics, 1977). p. 50. eRobert
Nozick, Anarchy, State and Utopia (New York:
Basic Books, 19741, p. 172; see also Murray
Rothbard, Power and Market (Menlo Park, CA:
Institute for Humane Studies, 19701, pp. 63-123.
gRobert Prinsky, “Income Tax Cheatmg Is On
The Rise In Great Britain As Prices Outstrip
Pay,” Val1 Street Journal (October 10, 1977) ;
see1 also Smith, “Tax Rates,” p. 460. “Mellon,
Taxation, pp. 13, 17; see also Editorial, “Tax the
Rich!” Wall Street Journal (March 8, 1977).
=De Jouvenel, Ethics, p. 76; see also Robbins,
“No~~s,”p. 8. ‘Helmut Schoeck, Envy (New
York: Harcourt, Brace & World, 19661, pp. 323-
30; de Jouvenel, Ethics, pp. 78-81; Blum and
Kalven, Uneasy Case, p. 74. q a y e k , CoFtitu-
tion, p. 311; see also de Jouvenel, Ethics, pp. 65-
6; Rothbard, Power and Market, p. 91. ”Walter
J. Blum, “The Uneasy Case for Progressive Tax-
ation, 1976” in Campbell, ed., Income Redistribu-
tion, pp. 153-4; Frank Chodorov, The Income
1 UX: “iuui “ j A11 E& (?J~ewYoA: D e ~ i n = A & i ~ ,
m
19541, p. 72. “These remarks were made on NO-
vember 14, 1977 at the Mayflower Hotel in Wash-
ington, D.C. at a conference sponsored by the
National Journal. “Congress of the United States,
Congressional Budget Office, Five- Year Budget
Projections: Fiscal Years 1978-1982 (December
19761, pp. 41-2. uThere is a vast literature on
this subject; see Henry J. Aaron, ed., Inflation
and the Income Tax (Washington: The Brook-
ings Institution, 1976); Randall Kau and Mi-
chael Schler, “Inflation and the Federal Income
Tax,” Yale Law Journal 82 (March 1973). pp.
716-44; Advisory Commission on Intergovern-
mental Relations, Inflation and Federal and State
lncome Taxes (Washington: U.S. Government
Printing Office, 1976) ; Jonathan R.T. Hughes,
The Governmental Habit (New York: Basic
Books, 19771, p. 210. URobert Prinsky, “Britain’s
Onerous Tax System,” Wall Street Journal
(March 28, 1977); Leonard Silk, “The ‘Swedish
Sickness’: Gloomy Economic Picture,” New
York Times (November 11, 1977) ; Richard Jans-
sen, “Trouble on the Road to Utopia,” Wall
Street Journal (November 10, 1977). ‘Blum and
Kalven, Uneasy Case, p. 103; Norman Ture,
“Comment,” in Campbell, ed., Income Redistri-
bution, p. 162.
Summer 1978