Concerns about taxation have the tendency to simmer.
At the moment tax is paid, a point of agreement, or clarity, has been reached on a number of points that might be contentious. This point may have been reached in the name of administrative ease, or, perhaps, necessity. The state needs money to function, so debates about whether money is owed can only last for so long. Any number of features of tax collection exists only so as to enhance ease and speed of collection.
Even if these agreements emerge from a somewhat forced, or hurried consensus, they merit consideration. A close look at tax assessments may reveal, inter alia: regimes protecting private property; an account within which interests in wealth are recognised by law; and, when otherwise unpaid labour needs to be allocated a monetary value. Perhaps most significantly, tax and spending choices may provide the mirror for what citizens, and the state, expect from each other.
These expectations can be complicated. For example, a majority of citizens might agree that they would like to increase the economy’s overall growth. They may agree that they are worried about losing their jobs, or being unable to meet payments due on their mortgages. The most likely way of improving economic performance may be through increased government spending; and, an increase in some forms of taxation may be necessary to achieve this. This call for raising taxation might be the point at which the consensus unravels.
How can taxpayers agree that it is important to achieve an outcome, but remain unwilling to pay for it? How can they insist upon their entitlement to two, apparently contradictory outcomes? This is a question with particular resonance in 2019. Indeed, the suggestion that this book is published during a year of remarkable political upheaval, and contradictions, falters only when one considers its starting point: the centenary of the plea, from Professor Joseph A. Schumpeter,1 that Austria takes its own ‘crisis of the tax state ’ seriously—falters, only because this suggestion seems less remarkable, and, perhaps, more timeless.
In 1918, the Austro-Hungarian Empire collapsed with the end of the First World War (Barker 1973). The portions of Austria that remained largely were German-speaking. The Treaty of Versailles forbid the creation of an official republic of “German-Austria,” yet the imperative to form a closer relationship, or Anschluss , between Germany and Austria was gaining increasing political momentum in Austria (ibid.: ch. 4). A rebuilt Austrian economy, Schumpeter believed, would render the calls for this union with Germany (a prospect he opposed) less desirable. Politicians within his own party, however, seemed invested in the idea that all was hopeless; and the lament that, given the restrictions imposed under the Treaty of Versailles, it was impossible for the Austrian economy to recover without Germany’s support (ibid.: ch. 4). Against this background, this economics professor, recently appointed as Austria’s Minister of Finance , gave a speech calling for attention to be paid to Austria’s “crisis of the tax state .” There were, Schumpeter argued, good possibilities for instituting taxes which would strengthen greatly Austria’s terribly weakened post-war economy—the one outcome on which all Austrians agreed. Why, Schumpeter, asked, did all Austrians not support the one path which he was certain would make things better? From these questions, ‘fiscal sociology’ was born.
Since 1918, fiscal sociology has had many iterations. This literature will be briefly reviewed. In the twenty-first century, fiscal sociology has become a phrase used by scholars to represent, primarily, two things: first, when scholars approach tax law in a way which departs from (what can be perceived as) a dominant, growth-focused narrative; and, secondly, when scholars who study inequalities, pluralism and “development” ask why tax scholars have not also considered issues within their field (or, why scholars in their disciplines are not also considering tax). Thus, fiscal sociology, generally, tends to be used as a clarion call to consider a government’s tax and spending decisions against criteria which deviate from “fiscal responsibility”, and “balanced budgets”. This is not to suggest that these are the only concerns of governments, but, rather, to argue that governments tend to posit that, once “balanced budgets” are achieved, then it will be possible to consider other issues (like inequality). So, one must come before the other. This is exactly the assumption which Schumpeter challenged, and why his essay from 1918 continues to be used as something of a shorthand for scholars seeking to find a different starting point for tax and spending analyses (or, at the very least, to find a starting point within which tax and spending may be considered together).
As Austria’s challenges in 1918 were serious, so are the challenges faced in 2019 worth our attention. This book was completed during the Spring 2019 Brexit negotiations. The observation that a disconnect between what a country wants, and that for which it is willing to pay, in this context appears as fresh today as it did one hundred years ago. Brexit, however, is not the only evidence of this. For greater depth, it is necessary to look at the UK’s budget, and the institutions which support it. This, also, is a key argument within fiscal sociology.
Schumpeter was very aware that, when he insisted upon the scholarly importance of budgeting decisions, he was addressing an institution with deep roots in British history. This book will consider this history and will detail how this very British innovation has evolved over the centuries. In particular, it will consider how the modern legal framework of budgeting—what this book suggests might be labelled “budget law”—has developed. Influences from the EU, and the USA, will be considered. The place of the domestic practice of budgeting within the ‘transnational turn’ also will be addressed. The reason for this is that the question of how a state taxes, and how it spends those taxes, is no longer simply a domestic question. For example, whereas nineteenth-century Britain turned to death duties as a response to growing concerns about inequality of wealth, in the twenty-first century, the OECD is encouraging countries to consider deploying inheritance taxation as a way to address concerns about unequal distribution of wealth in the modern era (Farrell, 12 April 2018). Political reform movements today emerge outside of domestic governance frameworks, as well as within.
What is most remarkable about a consideration of one hundred years of fiscal sociological analysis is the persistence of certain themes, and the extent to which the language used to describe problems a century ago resonates today. When the disconnect between what taxpayers are willing to pay, and what they expect from the state, is considered by scholars, Schumpeter’s “fiscal sociology” framework is evoked, although, other than mentioning Schumpeter and using the label, little else is rigid or fixed about how these analyses are approached. Perhaps this is because the label itself refers to the efforts of Schumpeter to find a language, or a toolset, for addressing the failures of the 1918 Austrian fiscal state; and, thus, the label has been borrowed ever since when scholars have been engaged in just such a search—and explored a way of answering questions that seem not to be answered within one’s home discipline.
What did Schumpeter mean why he suggested that this was a “sociological” enquiry? In the broadest sense, he was interested in a scientific study of societies, which also included fiscal issues. As an economist, Schumpeter’s starting point was that the answer to his questions could not be found within traditional economic enquiry. He suggested that (what he understood to be) a ‘sociological’ enquiry would be necessary to provide insight. Thus, his efforts to study ‘the fiscal state,’ never constrained by disciplinary boundaries, provided a theme for a long, prolific and remarkable career; and, thus, works beyond his 1918 essay are considered within this book.2
Within the fiscal sociological framework, separate discussions have emerged which, by all accounts, Schumpeter would have enjoyed. He has become a writer who means different things to different types of scholars. Whereas economic historians look back upon a contemporary (and antagonist) of Keynes,3 academic lawyers (and scholars from other disciplines) seeking to consider the connections between tax and the social contract may describe themselves as Schumpeterian fiscal sociologists. The ‘fiscal sociological’ framework has proved attractive to scholars for a number of additional reasons. As mentioned, the 1918 exhortation to consider the power of tax included an insistence (perhaps even more importantly) to acknowledge the significance of budgeting. This is because, when considered within the framework of the social contract, ‘tax’ problems are perhaps most accurately understood as tax and spending problems, as Schumpeter argued. Budgets, in fact, are incredibly important to the social contract; both as a topic of study, capable of providing deeper insight into the content of the contract, and, as pragmatic tools. If one wishes to argue that budgets are important, then Schumpeter is often the starting point.
An additional reason for the continuing attraction of Schumpeter’s analysis of the Austrian ‘crisis’ is the knowledge that, in 1918, he became the Minister of Finance , which was a very powerful political appointment. Given his political influence, his were not the thoughts of just any observer. His exhortation was wholly practical, urgent, and that much more desperate. He spoke as a political actor who had a plan, that he ultimately was unable to implement, largely because of the apparently insurmountable resistance to raising taxes. Having been appointed as Minister of Finance because of his expertise in economics, he soon realised the limits of his subject. It is one thing to have devised a plan for promoting economic growth. It is quite another to realise that it is politically impossible. To what extent should popularity matter, or not, when times are desperate? What exactly should states expect from citizens, and citizens expect from states? How is it possible to discern the content of those expectations? He asked all of these questions, and more, and these became the subjects of a ‘fiscal sociological’ analysis. Put simply, fiscal sociology is concerned with tax, spending and the social contract—as well as the laws and institutions that support these processes, and the politics that render some things possible (and others not).
This book will consider Schumpeter’s contributions to the study of tax and spending law, but it is not an essay within a Festschrift. In its aims to consider and to contribute to the field that has come to be understood as fiscal sociology, it engages a discipline (if it may be described as that—perhaps it is closer to a perspective) which largely has developed after Schumpeter’s lifetime. Also, the methods it brings to this task are self-consciously socio-legal, in the sense that cases, legislation, and literature written within the socio-legal tradition provide the main focus. Although he studied law, Schumpeter did not devote any notable amount of consideration of legislation and cases in his search for an answer to a question he never resolved; namely, the cause of the crisis of the Austrian fiscal state. Nonetheless, legal scholars have adopted his enquiry as their own, and thus their contributions are introduced here.
The purpose of this book is to apply the central questions of fiscal sociology to the UK; that is:
What does ‘failure of the tax state’ mean? What is the nature of the tax state? How did it come about? Must it...