#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

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More from @adamsmithworks

2 Mar
Having said what he had to say about taxes on rent and profits, #AdamSmith pauses, now, for an appendix to handle the taxation of the land and stock that generate rent and profit. (V.ii.h) #WealthOfTweets #SmithTweets
Dear readers, we hope you are tax nerds. (We still and forever ❤ you, nerds.) @turbotax @IRSnews @HRBlock (V.ii.h) #WealthOfTweets #SmithTweets
Taxing the revenue generated by land or stock doesn't diminish the ability of that land or stock to generate revenue. But taxing away a portion of the revenue-generating property does. (V.ii.h.1) #WealthOfTweets #SmithTweets
Read 22 tweets
28 Feb
Ready for more of #AdamSmith's thoughts on taxes from #WealthOfNations? Sure you are! (V.ii.e–h) #WealthOfTweets #SmithTweets
Taxes upon rent can also fall upon the rent of houses! House rent isn't like regular land-rent, though. It's split into two parts: the building-rent and the ground-rent. (V.ii.e.1) #WealthOfTweets #SmithTweets
Building-rent is really just the profit of the person who builds the building. Like all profit it's regulated by supply, demand, and the interest of money. (V.ii.e.2) #WealthOfTweets #SmithTweets"
Read 22 tweets
27 Feb
It's here! It's finally here! The (first) day #AdamSmith talks about taxes in #WealthOfNations!

We're assuming there's a group for whom this is exciting. We, the SmithTweeters, may not count ourselves among them. But let's go anyway! (V.ii.b) #WealthOfTweets #SmithTweets
Remember how Smith divided private revenue into rent, profit, and wages in the first book? Now he's gonna divide up taxes. Smith loves a good subdivision. Taxes can fall on:
1) Rent
2) Profits
3) Wages
4) All three indifferently. (V.ii.b.1) #WealthOfTweets #SmithTweets
He'll be dividing up three of these into further subdivisions, obvs. (V.ii.b.1) #WealthOfTweets #SmithTweets
Read 27 tweets
26 Feb
Now you know all the things #AdamSmith has to say about what the government should spend money on. But that money's gotta come from somewhere. What does #WealthOfNations say about how governments should get money to spend? (V.ii.) #WealthOfTweets #SmithTweets
I know the tax nerds have been waiting for this chapter (we ❤ you, nerds), but first Smith wants to talk about other sources of revenue "which may peculiarly belong to the Sovereign or Commonwealth". (V.ii.a) #WealthOfTweets #SmithTweets
IOW, before we get to taxes we've gotta cover businesses run by the sovereign (like the post office), public banks, public lending, and revenue from public lands.

But don't worry, we can do that pretty quickly...ish. (V.ii.a) #WealthOfTweets #SmithTweets
Read 17 tweets
25 Feb
Sovereigns are fancy, and they need revenue to support their fanciness. This is the entirety of part four of this chapter. (V.i.h.1–3) #WealthOfTweets #SmithTweets
In conclusion, all these expenses in Book V Chapter 1—defense, justice, public works, education, religion, fancy sovereigns—are for the benefit of society as a whole so society should help pay for them. (V.i.i.1–6) #WealthOfTweets #SmithTweets
When possible, it is good to find ways to make these things also help pay for themselves, though. You can’t ever expect them to cover all those costs, though. (V.i.i.1–6) #WealthOfTweets #SmithTweets
Read 4 tweets
24 Feb
#AdamSmith isn’t just interested in educating kids. He knows we need #LifeLongLearning and #AdultEducation.
He doesn't mean university courses for adults, but rather “preparation for a better world to come.” (He means church.) (V.i.g.1) #WealthOfTweets #SmithTweets
So we need to know how to best fund the clergy who provide this kind of education. Direct payments from their hearers? Tax? Tithe? Salary? (V.i.g.1) #WealthOfTweets #SmithTweets
Just as with other educators, clergy will be more zealous and hard working when they are paid directly by hearers rather than being guaranteed an income. This is why newer religions are so lively. (V.i.g.1) #WealthOfTweets #SmithTweets
Read 33 tweets

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