System of Economical Contradictions; Or, The Philosophy of Misery

by P.-J. Proudhon

If, on the contrary, the tax falls on product, it is nothing but a tax of quotite, which each pays in the ratio of his consumption, while the capitalist, whom it is purposed to strike, escapes.

Moreover, the supposition of a progressive tax based either on product or on capital is perfectly absurd. How can we imagine the same product paying a duty of ten per cent. at the store of one dealer and a duty of but five at another's? How are estates already encumbered with mortgages and which change owners every day, how is a capital formed by joint investment or by the fortune of a single individual, to be distinguished upon the official register, and taxed, not in the ratio of their value or rent, but in the ratio of the fortune or presumed profits of the proprietor?

There remains, then, a last resource,—to tax the net income of each tax-payer, whatever his method of getting it. For instance, an income of one thousand francs would pay ten per cent.; an income of two thousand francs, twenty per cent.; an income of three thousand francs, thirty per cent., etc. We will set aside the thousand difficulties and annoyances that must be met in ascertaining these incomes, and suppose the operation as easy as you like. Well! that is exactly the system which I charge with hypocrisy, contradiction, and injustice.

I say in the first place that this system is hypocritical, because, instead of taking from the rich that entire portion of their income in excess of the average national product per family, which is inadmissible, it does not, as is imagined, reverse the order of progression in the direction of wealth; at most it changes the rate of progression. Thus the present progression of the tax, for fortunes yielding incomes of a thousand francs and UNDER, being as that of the numbers 10, 11, 12, 13, etc., and, for fortunes yielding incomes of a thousand francs and OVER, as that of the numbers 10, 9, 8, 7, 6, etc.,— the tax always increasing with poverty and decreasing with wealth,—if we should confine ourselves to lifting the indirect tax which falls especially on the poorer class and imposing a corresponding tax upon the incomes of the richer class, the progression thereafter, it is true, would be, for the first, only as that of the numbers 10, 10.25, 10.50, 10.75, 11, 11.25, etc., and, for the second, as 10, 9.75, 9.50, 9.25, 9, 8.75, etc. But this progression, although less rapid on both sides, would still take the same direction nevertheless, would still be a reversal of justice; and it is for this reason that the so-called progressive tax, capable at most of giving the philanthropist something to babble about, is of no scientific value. It changes nothing in fiscal jurisprudence; as the proverb says, it is always the poor man who carries the pouch, always the rich man who is the object of the solicitude of power.

I add that this system is contradictory.

In fact, ONE CANNOT BOTH GIVE AND KEEP, say the jurisconsults. Instead, then, of consecrating monopolies from which the holders are to derive no privilege save that of straightway losing, with the income, all the enjoyment thereof, why not decree the agrarian law at once? Why provide in the constitution that each shall freely enjoy the fruit of his labor and industry, when, by the fact or the tendency of the tax, this permission is granted only to the extent of a dividend of fifty-six and a half centimes a day,—a thing, it is true, which the law could not have foreseen, but which would necessarily result from progression? The legislator, in confirming us in our monopolies, intended to favor production, to feed the sacred fire of industry: now, what interest shall we have to produce, if, though not yet associated, we are not to produce for ourselves alone? After we have been declared free, how can we be made subject to conditions of sale, hire, and exchange which annul our liberty?

A man possesses government securities which bring him an income of twenty thousand francs. The tax, under the new system of progression, will take fifty per cent. of this from him. At this rate it is more advantageous to him to withdraw his capital and consume the principal instead of the income. Then let him be repaid. What! repaid! The State cannot be obliged to repay; and, if it consents to redeem, it will do so in proportion to the net income. Therefore a bond for twenty thousand francs will be worth not more than ten thousand to the bondholder, because of the tax, if he wishes to get it redeemed by the State: unless he divides it into twenty lots, in which case it will return him double the amount. Likewise an estate which rents for fifty thousand francs, the tax taking two-thirds of the income, will lose two- thirds of its value. But let the proprietor divide this estate into a hundred lots and sell it at auction, and then, the terror of the treasury no longer deterring purchasers, he can get back his entire capital. So that, with the progressive tax, real estate no longer follows the law of supply and demand and is not valued according to the real income which it yields, but according to the condition of the owner. The consequence will be that large capitals will depreciate in value, and mediocrity be brought to the front; land-owners will hasten to sell, because it will be better for them to consume their property than to get an insufficient rent from it; capitalists will recall their investments, or will invest only at usurious rates; all exploitation on a large scale will be prohibited, every visible fortune proceeded against, and all accumulation of capital in excess of the figure of the necessary proscribed. Wealth, driven back, will retire within itself and never emerge except by stealth; and labor, like a man attached to a corpse, will embrace misery in an endless union. Does it not well become the economists who devise such reforms to laugh at the reformers?

After having demonstrated the contradiction and delusion of the progressive tax, must I prove its injustice also? The progressive tax, as understood by the economists and, in their wake, by certain radicals, is impracticable, I said just now, if it falls on capital and product: consequently I have supposed it to fall on incomes. But who does not see that this purely theoretical distinction between capital, product, and income falls so far as the treasury is concerned, and that the same impossibilities which we have pointed out reappear here with all their fatal character?

A manufacturer discovers a process by means of which, saving twenty per cent. of his cost of production, he secures an income of twenty-five thousand francs. The treasury calls on him for fifteen thousand. He is obliged, therefore, to raise his prices, since, by the fact of the tax, his process, instead of saving twenty per cent., saves only eight per cent. Is not this as if the treasury prevented cheapness? Thus, in trying to reach the rich, the progressive tax always reaches the consumer; and it is impossible for it not to reach him without suppressing production altogether: what a mistake!

It is a law of social economy that all invested capital must return continually to the capitalist in the form of interest. With the progressive tax this law is radically violated, since, by the effect of progression, interest on capital is so reduced that industries are established only at a loss of a part or the whole of the capital. To make it otherwise, interest on capital would have to increase progressively in the same ratio as the tax itself, which is absurd. Therefore the progressive tax stops the creation of capital; furthermore it hinders its circulation. Whoever, in fact, should want to buy a plant for any enterprise or a piece of land for cultivation would have to consider, under the system of progressive taxation, not the real value of such plant or land, but rather the tax which it would bring upon him; so that, if the real income were four per cent., and, by the effect of the tax or the condition of the buyer, must go down to three, the purchase could not be effected. After having run counter to all interests and thrown the market into confusion by its categories, the progressive tax arrests the development of wealth and reduces venal value below real value; it contracts, it petrifies society. What tyranny! What derision!