Thread by @adamsmithworks

#AdamSmith's thoughts on taxation: They are numerous, and outlined in detail in #WealthOfNations. Today we'll be looking at taxes on profit! (V.ii.f–g) #WealthOfTweets #SmithTweets

Smith starts out by reminding us that profits are divided into the part that pays the interest and the part over and above that which pays the interest.

You can't tax the over-and-above part directly. (V.ii.f.1–2) #WealthOfTweets #SmithTweets

Over-and-above paying the interest might sound like it's extra money, but it's not! It compensates the owner of stock for things like risk and trouble. If you tax away this profit, the owner of the stock won't employ it productively. (V.ii.f.2) #WealthOfTweets #SmithTweets

So, if profit is taxed, the owners of stock have to either increase their rate of profit to cover the tax or pay less interest. (V.ii.f.2) #WealthOfTweets #SmithTweets

If the owner of stock raises their rate of profit to cover the tax, the money they collect becomes part of their stock. They expect to earn a profit for advancing the tax to the government. But they're not going to pay it in the end. (V.ii.f.2) #WealthOfTweets #SmithTweets

If the stock is used in manufacturing, the added money for the tax will come from increased prices for consumers.
If the stock is used in agriculture, the added money for the tax will come from lower rent paid to landlords. (V.ii.f.2) #WealthOfTweets #SmithTweets

And the increased price/reduced rent will be by more than whatever the tax costs so that the owner of the stock can earn a profit on the money they advance to the tax-collectors on behalf of whoever finally pays it. (V.ii.f.2) #WealthOfTweets #SmithTweets

If the owner of stock covers the tax by paying less in interest, that means they can borrow less and employ less stock. This means less stock is put to productive use.

That's bad. (V.ii.f.2) #WealthOfTweets #SmithTweets

So we guess what he's saying here is that it's not like taxing profits is any simpler than taxing rents. (V.ii.f.2) #WealthOfTweets #SmithTweets

What about just taxing the interest?

Nah, says Smith.

Interest rates are set by the amount of money available and the demand for that money. Taxing it doesn't change those things, so it won't change the rate of interest. (V.ii.f.3) #WealthOfTweets #SmithTweets

Money and land are both set.
Land-rent is a fine subject for taxation. Why not interest?

Two reasons:
1) Stock is easier to hide than land.
2) Stock moves, land doesn't. You can chase it away and make everyone poorer. (That's bad.)
(V.ii.f.4–6) #WealthOfTweets #SmithTweets

So if the amount of money is set,
and the amount of stock is set,
and the rate of profit is set,
any tax on profits is going to, for realsie reals, be paid by consumers and landlords. (V.ii.f.3–6) #WealthOfTweets #SmithTweets

This all makes taxes on profit hard to set fairly. Countries that did it sort of guesstimated and had to be happy with that...unless they were small and weird enough to have citizens who honestly commit to pay a tax on their profits. (V.ii.f.7–14) #WealthOfTweets #SmithTweets

Some countries try to tax the profits of a particular branch of trade. But—for realsie reals! Smith has told you so!—it's gonna be paid by consumers. (V.ii.g.1–4) #WealthOfTweets #SmithTweets

If you thought Smith had a lot of shade to throw at France before we got to taxes...well, you ain't seen nothin' yet. (V.ii.g.5–7) #WealthOfTweets #SmithTweets

The taille is a French tax on profits only charged on people so poor and politically unpowerful that they're unable to avoid it. Its assessment is tres onerous, its cost is oppressively high, and its level is aggressively arbitrary. (V.ii.g.5–7) #WealthOfTweets #SmithTweets

The nobility are taxed much more lightly and don't help the common people because they generally despise them. (We can't see how this might possibly go wrong in a few years.) (V.ii.g.5–7) #WealthOfTweets #SmithTweets

When taxes on profits affect specific manufactured goods, the manufacturer will reduce the number of goods they bring to market to ensure their profits are high enough to cover the tax. Which passes it on to consumers. FOR👏REALSIE👏REALS👏 (V.ii.g.8) #WealthOfTweets #SmithTweets

When taxes on profits affect specific agricultural goods, the farmer produces what the land will produce, still collects profit and pays wages, but reduces rent paid. Which passes the tax onto landlords. FOR👏REALSIE👏REALS👏 (V.ii.g.8) #WealthOfTweets #SmithTweets

If the owners of stock can't pass the costs onto the consumers or the landlord, they'll get out of any business that can't support a reasonable profit, and the government will not collect any tax. (V.ii.g.8) #WealthOfTweets #SmithTweets

The taille is set based on the stock that farmers employ. So farmers use "the meanest and most wretched instruments of husbandry" available to them. (V.ii.g.9) #WealthOfTweets #SmithTweets

The farmers subject to the taille in this way feign poverty and fool tax officials they don't trust and a state they don't feel represents their interests.

Again, we have NO IDEA how this could possibly go wrong. 😬 (V.ii.g.9) #WealthOfTweets #SmithTweets

We are not jazzed about the way Smith talks about enslaved workers here. We wish that he took every opportunity available to him to denounce slavery. It's not like the guy didn't take every opportunity to digress on other subjects. (V.ii.g.10–11) #WealthOfTweets #SmithTweets

But he doesn't here. He just discusses poll-taxes, which were taxes charged per-head of enslaved or bonded worker.
He does acknowledge that these taxes are despised when applied to freemen because of its association with slavery. (V.ii.g.10–11) #WealthOfTweets #SmithTweets

He even says that the fact that workers have to pay a poll-tax on themselves should be seen as evidence of their freedom. No slave has to pay taxes.

...like. It's better than nothing. We guess. But we wish it were more... (V.ii.g.10–11) #WealthOfTweets #SmithTweets

Taxes on servants are NOT like poll-taxes. Poll-taxes apply to workers who produce things, while servants provide...well, service.

So taxes on servants is a tax on consumption, not on production. (V.ii.g.12) #WealthOfTweets #SmithTweets

There's nothing special about taxing profits in particular industries that makes it more likely to affect the rate of interest than taxes on profit generally. (V.ii.g.13) #WealthOfTweets #SmithTweets

Tune in tomorrow for... AN APPENDIX! Yes, really. We'll see you then! #WealthOfTweets #SmithTweets