Consider a country where the richest of the rich—the 0.1 percent, as it were—are forced to loan exorbitant amounts of money to the government, loans that the government often fails to pay back; and where the government simply takes the property of wealthy citizens when they fail to comply. In this country, the rest of the top 10 percent has tax obligations almost as onerous and are also required to contribute money for other purposes, such as provisioning the army, and to serve the government without pay.
What country is this? Cuba? Venezuela? In fact, it is England in the 1200s, when the English Parliament was born. These tax policies were critical to how Parliament emerged. The principle “no taxation without representation” is entrenched in our political consciousness. But it is misleading: heavy taxation, particularly of the rich, actually preceded representation and made it possible.
“Taxing the rich” has emerged as a controversial proposal on how to deal with the historic rise in inequality of the last few decades. Thomas Piketty recently recommended taxing the top 1 percent globally to redistribute wealth, reduce inequality and provide a generous social safety net. The policy has been attacked on both the left and the right as unfeasible, unpredictable in its effects, even unconstitutional, and in any case inadequate to address the needs of a welfare state, although other research powerfully contradicts them.
The historical record, however, suggests that taxing the wealthiest does have an important, but different, consequence: making the wealthy vested in the common good. In fact, taxing the wealthy was crucial for the emergence of representative government itself.
Based on an original database of about 600 members of the English nobility between 1200 and 1350, my research shows the remarkable scale of the obligations, both fiscal and military, that the wealthiest in England owed to their crown. Unlike their French or Spanish counterparts, who were typically exempted from fiscal duties, the English nobility bore a heavy burden on both fronts. Almost all were obliged to perform military service and more than 30 percent had their estates confiscated over unfulfilled obligations to the crown, whether temporarily or permanently. Between 20 and 40 percent were in debt to the crown, usually for overdue taxes.
The high fiscal burden remains obscured because some of the most famous nobles, the topmost level of society, paid little in taxes. Probably the richest noble of the 1290s,the Earl of Cornwall, had an annual income amounting to 3,000 or 4,000 pounds, yet he contributed only about £10 in taxes.
What this misses, however, is that the earl had lent over £18,000 to the crown throughout his life, which could have been about 20 percent of his lifetime income — a remarkable amount when the highest tax rate at the time was 10 percent. Such loans were advanced by many of the earls and top nobles. Furthermore, the Earl of Cornwall was never reimbursed; in fact, when he died childless, virtually his entire estate was forfeited to the crown.
It is unsurprising, therefore, that at least 75 percent of the nobility attended parliament. Two separate forces pushed them. First, because the government was forcing nobles to loan it money, these nobles supported the government’s ability to raise taxes from other sectors of society, so that the government could pay the nobles back. Loans are serviced by taxes, and one of the biggest obstacles to taxation is that local elites will resist it; but once these people are vested in the government and in its ability to tax, they enable that capacity to grow—or at least their resistance weakens.
A similar dynamic helps explain the emergence of democracy in the city-states of Europe. The political scientist David Stasavage has described how merchants were heavily vested in the public debt of various city-states, as well as early modern England, and this secured their presence in the representative assemblies that granted taxation. This was an ancient practice after all: Plutarch recounted how Eumenes, a Macedonian general, accepted loans from his rivals, thus vesting them in his survival and co-opting them.
The second force pushing the rich to hold the government accountable is that when they are forced to pay high taxes, they feel compelled to monitor the government’s actions and check how their money is spent. Where the rich are not vested in public affairs through high contributions, they are less likely to use their bargaining powers to bring change.
This ancient history has modern implications. For example, the bargaining powers of, say, the members of The Giving Pledge are incomparably higher than those of disparate citizen interest groups. Policy outcomes will be very different when the richest of the rich are forced to contribute to the public welfare, as the democratic process has defined it, rather than simply donating where they wish, as lobbies or charities do today.
Or consider the government’s struggle to raise money in a country like Greece: in such cases, the government is too weak to force those who have most to actually pay taxes, while these citizens remain indifferent to the public good. Those who do pay taxes are typically too weak to effect change. The result is a stalemate wherein the government cannot tax those who are not only most able to pay but also most able to demand change and accountability.
The point of this history for today is not that modern governments should force the wealthy to loan them money or confiscate their property if they fail to meet their obligations (although it might not be a bad idea to require wealthy citizens to serve in the military).
But it does suggest that “taxing the rich” can actually help democracy. When the government is strong enough to impose a substantial obligation on the richest people, they are inclined to lobby the government to ensure those funds are efficiently spent. This is quite different than the pattern that mostly occurs today, where the wealthy lobby the government for tax breaks or private interests—and the state is too weak or too unwilling to resist. “Taxing the rich something more than in proportion” to their wealth is what Adam Smith himself still praised about the English system of taxation many centuries after its Parliament was born.
Deborah Boucoyannis is an Assistant Professor of Politics the University of Virginia and a member of the Scholars Strategy Network.