One interesting historical exposition in The Pillars of the Earth is the nature of medieval taxation. A major source for taxation was through the milling of grain. With bread being the staple food, everyone needed flour and this opened up the door to a “broad-based tax.” It was simply made unlawful for anyone to privately grind one’s own grain. To comply with the law, you had to use the facility owned by the local lord, or local monastery, or whomever – the taxing agency. The miller could then extract a portion of the milled flour as payment for services and then such payment would be split with the “government” either as a fee for the license to operate the mill or, perhaps, a combination of that and the use of the government-owned facility.
It had something of an advantage, morally, of not being a taking. The user was simply paying a fee for services rendered. Force only came into play in that circumventing the requirement to use the government’s mill was subject to a fine that exceeded the cost of paying to have your grain milled in the first place, and this was far from voluntary. In the book, Prior Phillip (a main character) lectures a woman who is caught and fined for illicit milling of grain. She pleads that she is destitute and cannot afford the fine which, by the way, is why she didn’t pay the mill in the first place. What’s interesting is Phillip attaches no moral implications to evading the levy. He doesn’t tell her that it was her civic duty or her ethical obligation to pay her “fair share,” or that communal milling makes flour more economical for everyone. He does defend the necessity for (in this case) the monastery to raise money and that, while it is her natural right (my words, not his) to evade the taxation, when caught she shouldn’t complain about penalties that she knew full well in advance. The alternative, of course, is that she seek charity to obtain food when the cost of milling grain becomes prohibitive. The Prior acknowledges that breaking the law may be less debasing than begging for food, but that it is was her choice.
I, first of all, have to acknowledge that this is fiction. The words of the characters and even, perhaps, their circumstances are penned by an author of our present age. This should not be mistaken for medieval fact. Details may well reflect the sensibilities of our time rather than the reality of 850 years ago. That said, I do have some reflections on our duty to support government and how far we’ve come in recent generations.
It is true that, for the time covered by this novel, that the nobility generally couldn’t just show up at people’s doors and demand significant portions of their money. Even kings obtained their income through controlling particular governmental monopolies and “earning” the fees associated therewith. Local lords, in addition to such possible licenses, would typically own a significant portion of the land within their domain and, therefore, extract rent from those who actually worked the land. Like today’s rent, the cost of the rental is a combination of money for services rendered by the landowner, compensation to the landowner for (in the modern case) capital investment, and taxation. It gets hard to quantify but I think it is safe to say that tolerance for outright taxation was lower than what it is today.
Another angle to this is the accounting aspect – the ability of a lord and his ministers to keep track of all they needed to track to extract the tax in question. Applying a tax to “income” would have been difficult, if not impossible, in medieval times simply due to the required record-keeping. By way of contrast, head taxes (be they in the form of licenses or otherwise) or rents were doable, as they taxed static entities. Very specific levies, like taking a percentage of the profits from a single mill, could also be managed in that the monitoring required was discrete. One lord (or his agent) can keep some kind of track over the workings of a single mill. Doing the same for every non-farmer in a county, on the other hand, would have been impossible.
Today, of course, it is possible to monitor nearly every financial transaction that we enter into and each passing year we are getting nearer to the ability to track pretty much everything. In Europe, there is a concerted effort to stomp out cash and governments are likely going to resist Bitcoin-type economies, especially if they become widely popular. At the same time, our tolerance for ever higher taxes seems to grow in response to the demand for ever higher taxes.
Just to get a sense of where things are, in Denmark and France, taxation is approaching 50% of GDP. Even this significantly understates the level of taxation in those highest-taxed of nations. First of all, government spending is part of GDP, so if you make the assumption that all government spending ultimately has to source itself from taxation upon private incomes, the percentage will easily shoot into the 2/3rds or 3/4ths range. Also, taxation does not take into consideration compliance costs, some of which are directly equivalent to taxation. Requiring that a business spend X% of it’s income doing Y is, functionally, no different than taxing it X% and paying for Y from the government coffers. However, its not the absolute number we’re after here, but a relative one.
In the United States, we are close to the bottom of the OECD average. At 26% (Federal, State, and local combined), we are higher than only Korea, Turkey, Ireland, Chile, and Mexico (itself an interesting list). The OECD average is often used because, like the medieval feudal lords, undeveloped economies simply don’t have the sophistication to administer OECD-levels of taxation. America’s low rank in the list, and the significant gap below countries like Denmark, France, and Belgium, are cited as evidence that the U.S. can significantly increase taxes without damaging our economy. A more specific calculation of a desired tax level comes from looking at current spending. The Federal portion of that 26% tax take ranges around 17%, give or take a couple of percentage points. Analysts have calculated that it will be necessary to raise that to the 25-27% of GDP range in order to cover our deficit spending and “meet our obligations” going forward. That still wouldn’t make us France.
However, I’ve been fascinated with a chart I first saw a chart a couple of years ago that may be instructive. That 17% (give or take) has been constant since the Second World War. Before that, there were some wild gyrations during the Great Depression, of course, but tax rates were below 5%. It took the redirection the economic might of American against the Axis to bump us up to 20%+ before settling into our current band. What is amazing is that that 15-19% remains constant despite massive changes in tax rate policy through the years. In 1962, the top Federal Tax bracket rate was 90% and the Feds took 16.5% of GDP. In 1987, it was a post-WWII low of 29% and the Feds took 17.6%. So while tax policy, obviously, effects tax revenues, it is historically considerably less of an effect than one might surmise.
Finally, I note, that for the charts that also plot projections show the revenue percentage growing going forward, exceeding not only the historical trends but usually also the historical record. What are the chances that’s really going to happen?
To put it another way, what are the factors that have historically kept the U.S. tax rate near to constant, and what is changing about that, if anything? There is a mathematical portion of this equation that is somewhat independent of other factors. If we transition to a government that does more, that’s going to alter the relationship between tax rates and tax percentage of GDP, even with all else remaining equal. Remember, GDP includes government spend and, therefore, effectively includes the tax rate in the numerator and the denominator both. Simply shifting an economy from capitalist to socialist will require higher taxpayer rates just to maintain the same tax revenue percentage. But setting that aside, we have a cultural resistance that is part of keeping that tax take at 17% (even if that’s not how we perceive that limit). In medieval times, I have read, that a lord that took more than 10% from his subject would be considered tyrannical. I don’t know if that’s true, or even what that means given what I’ve said above, but do we have this hard limit of 20.5% that “the people” will fight if it is broken? Or is a big part of that limit technological? As government and “big data” is ever more capable of tracking every transaction, will that limit the ability of the “black market” to serve deterrent to ever-higher taxes.
Whatever it is that has held tax revenues steady is fighting an inevitable push from the other side. I’ve routinely seen a defense of a steady 3-5% increase in tax rates; Both that it is reasonable (in line with inflationary measures) and necessary (costs associated with government, such as health care and education, tend to grow faster than the economy as a whole). On the other hand, if you grow a percentage by 3-5% in perpetuity, it eventually hits 100%. Furthermore, at some point before it hits 100%, the “denominator” upon which that percentage is based starts to crumble and fall apart. There would seem to be some first-order math that would project a breaking point, at least far enough to tell the difference between “not in my lifetime” and “time to buy canned goods.”
The Pillars of the Earth has been great for these details of medieval life, which it integrates into the story so well. It has also been good as a novel – toward the end, I was driven to get to the “whodunnit” answer that remained throughout the book. I also, as I wrote earlier, have been impressed with its integration of the fictional story with the grand history of England. At the end, it is the Thomas Becket’s service as Archbishop of Canterbury that entwines with the story of our fictional builders and their Cathedral to propel this chapter to its conclusion.
I guess I’ll have to read the next book.