Why Taxes are good for you #3: look what happened to China

One of the great disadvantages of low taxes is that you end up getting conquered. As China learned at terrible cost. In the eighteenth century Qing China had been one of the greatest states in the world:, rich and populous, with booming trade, advanced techniques in agriculture, and envied craftsmanship  Taxes were low, less than 5% of GDP it is estimated. So was military spending. And there was the problem. For nations in the west, like Britain for example, ran at much higher tax burdens, perhaps 15-20% GDP. With the result that they could pay for vast armies and fleets which captured all the world’s sea lanes and trade routes. It’s true that the most advanced western thinkers were classic Liberals like Ricardo and John Stuart Mill, who loudly proclaimed the virtues of low taxes and a minimal state. It was just that no one serious paid any attention to them. The result that these fleets and armies were eventually flung against China. The resulting Opium Wars were not only one of the most terrible crimes in History, they disgraced and destabilised China until 1949.[1] [2]

It was a lesson the British themselves had to relearn after the rise of Hitler forced them into frantic re-armament after 1937. After nearly two decades of orthodox economics like the Gold Standard and low taxes, suddenly the latter began to rise. Fast. All those Spitfires and cruisers and radar had to come from somewhere. So in 1938 the standard rate of income tax was raised to 27.5% (5s 6d in the pound) to help fund rearmament.   A 41% surtax applied to very high incomes (over £50,000 annually), targeting the wealthiest. Other hated impositions like death duties and PAYE *were imposed. And -despite what it says in the Daily Mail-it worked. Not only was just enough done to survive the perilous summer of 1940, by 1944 Britain was the most fully mobilised of all the wartime economies. Pride indeed.

Yet there is a little irony at work here . It is our lived experience that those who most loudly proclaim the greatest patriotism are also those who would avoid paying taxes wherever and when ever possible. It is their right to say such things. But ours also to at least doubt the sincerity of a patriotism which will not pay to uphold that which it professes to adore.

_{*Pay as You Earn}

[1] Thomas Piketty Capital and Ideology

[2] David Ricardo Principles of Political Economy and Taxation

#taxation #economics #liberalism #free markets #imperialism #opium wars #china #britain