The Optimal Tax as a Neutral Tax, in the Physiocrats, in Smith and the Italian Catastisti of the Eighteenth Century

Abstract

The question may appear paradoxical but it isn’t. I said earlier that public debt (§§ 134 and 135)¹ and taxation (§§ 15–18) sometimes appear alive but are dead. They are the vendettas of reality for the arrogance of the avengers. These would like men to suffer from taxes and continuously to compare one man’s sacrifices with another’s and to add sacrifice to sacrifice and to make sacrifice proportionate to pleasure; or they would like taxes to take away every year a constant or variable part of a certain mysterious accounting item called profit. Reality mocks the avengers’ plans and regularly upsets them. No sooner has the doctrinaire devised a system whereby all those who find themselves in a given situation must pay, for example, a tax of L1,000 lire on L5,000 of income, than inexorably, day by day, time erodes the work of the learned lawmaker. For some years X pays the L1,000 on the L5,000 of income from his house and suffers, as the avenger wished. As for all human suffering, the suffering of taxation diminishes with time and habit makes it appear less. The time comes when X sells the house and goes his way with L80,000, the market price at 5 per cent of a house yielding L4,000 net. He has endured the amputation of L20,000 compared with the L100,000 the house would have been worth if the tax had never existed. If time has not yet dimmed the memory of the incomes and prices of old, he may well be the only one at this point to suffer from the tax of L1,000.

First published as ‘L’ottima imposta come imposta neutra, nei fisiocratici, in Smith e nei catastisti italiani del Settecento’, in Miti e paradossi della giustizia tributaria (Turin: Giulio Einaudi Editore, 1938).