David Ricardo on Taxation

Since, however, taxation is a necessary evil- given the necessity of funding the government- Ricardo engages in an extended discussion about by which principles taxation should be guided. After describing different bases for taxation, such as income or expenditures, and after distinguishing between direct and indirect taxes on profits, Ricardo presents the criteria he considers the least damaging. Ricardo’s qualifications are that “the burthen be equally borne,” and “do not repress reproduction.” That is, if there is universality in the application of a tax, and its burden is not so heavy as to prevent the economic agents from engaging in the taxable activity, Ricardo claims indifference between whether income or expenditures are taxed. That is a very high bar, however, and Ricardo emphasizes that for that to be the case, “all other income (must) be taxed,” and “no class of the community can escape them,” and, finally, that “each contributes according to this means.” As it can be observed in other passages of Ricardo on taxation, he gives great weight to as much “neutrality” in taxation as it can be possibly conceived. Both this discussion about the taxation on the “raw produce” of the country, from which this quote was drawn, and the notion of “Ricardian Equivalence,” as presented in his 1820 Essay on the Funding System are examples of that ideal by which taxation policy should be guided, according to Ricardo.