Unless the trend changes significantly, taxes will likely continue rising slowly

When High Taxes Lead to Revolution

by Peter St. Onge

History is full of tax revolts. It’s a fairly popular pastime, if historians are to be believed. But when do they come? What’s the spark and what’s the gasoline?

In Sun-Tzu’s Art of War, he argues that long military campaigns are unwise because they exhaust the people, and he says that long campaigns exhaust “seven tenths” of the wealth of the elites.

This is one of those oddly-specific claims that sometimes strike westerners as hilarious. But Sun-Tzu was a historian, and lived in an era with plenty of case studies of war’s destruction. So it’s worth exploring his rule of thumb here.

One of the problems we immediately face is a lack of good statistics for most historical periods. Even in the twentieth century, statistics can be incomplete, biased, or poorly collected. Before then, all bets are off — the statistics stink in history.

So we have two choices: either we completely ignore the past, and reinvent every wheel. Or else we estimate the past using these kinds of subjective commentaries like Sun-Tzu’s. The model is a radar, used not to “see” something but to estimate its location with fragments of data.

So let’s use this “radar” method on Sun-Tzu’s “seven-tenths.” One interpretation is that he thinks there’s an upper limit to the devastation that can be imposed on your own citizens. This would be consistent with modern economic “marginal analysis,” where people value a loss more as it grows bigger. For example, if you take $10 from a billionaire, it’s not a big deal, but if you take his last $10 in the world he’ll fight you to avoid going hungry.

In this light, Sun-Tzu is saying that once you pass the 70 percent threshold, people become desperate enough to shift from sheep to wolf.

We can translate this into a modern hypothesis, that the people will accept up to a 70 percent tax rate with manageable protest, but go much beyond that and you’re likely to have problems. Now, we’re still a way off this mark in the US: spending at all levels of government in 2014 was about 42 percent. The highest spenders in the world, according to the OECD, are the Scandinavians at about 50 percent.

While these are high numbers, they’re still well below Sun-Tzu’s 70 percent. And the trends are not as bad as they might seem. While the trend is worsening, we’ve still got a ways to go: OECD average tax take grew about 4 percent between 1975 and 2010. At that rate the US wouldn’t get to 70 percent for another 250 years. Fortunately we’d have a “canary in the coalmine” as the Scandinavians would hit this threshold about 100 years earlier.

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Read more: mises.org