Tax Analysts Blog

Timeless Tax Policy & The Other Colbert

Posted on Dec 11, 2012

Congress will soon be forced to contemplate fundamental tax reform. To stimulate their intellectual juices, we thought we'd do something useful -- like turn our attention to Jean-Baptiste Colbert. No relation (that we know of) to Comedy Central's Stephen Colbert. Students of history will recognize the elder Colbert as French finance minister under Louis XIV (1665 to 1683) and key player in the brain trust behind the Ancien Régime.

True, the French eventually had a nasty revolt, but not for 100 years after Colbert's time. During his tenure, Versailles was the fiscal center of the universe and he was its paymaster. So what lessons can this 17th century financier teach modern-day policymakers?

"The Other Colbert"

When asked by a colleague to explain the secret of his success, Colbert offered the following words of enlightenment: "The art of taxation consists of so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing." A better statement of tax policy has never been uttered. This morsel of wisdom has proved timeless, as a quick survey of recent developments makes clear.

All across Europe today, governments are facing large deficits that need closing. Many are turning to that old war-horse of fiscal desperation: excise taxes on booze. Politicians like to think 'sin taxes' are more easily tolerated by the masses because they're perceived as non-compulsory. We will save our tirade against indiscriminate excise taxation for another day. What's relevant here is how the taxing is being done -- or more accurately, how it's not being done.

Ireland needs revenue or it will be clobbered by the bond market. The finance ministry doesn't want to raise personal income taxes any further, as rates are already quite high. It could increase the corporate tax rate (lowest in the EU at a mere 12.5%) but that might drive away foreign investment and kill jobs. Instead the government has gone after booze. The new Irish budget will raise the excise tax on a bottle of wine by a full euro. However, the tax hike is primarily focused on wine. Beers and whiskey -- far more popular in Ireland than wine -- have escaped the worst. The tax increase on a pint of ale is a negligible €0.10.

France also needs revenue, even though the new socialist administration has already raised other taxes. They too have turned to the booze tax. New legislation introduced this month will increase the tax on beer by a massive 160%. The tax on wine was left unchanged. This from the land famous for its vineyards and prized terroir.

Thus we observe that Irish taxes go easy on Guinness, while French taxes tread lightly on Côtes du Rhône. It's tempting to accuse these countries of blatantly pandering to local preferences. But conceptually their policy contortions aren't so different from U.S. efforts to protect our own favorite exemptions, deductions, and exclusions.

Every tax system has its sacred cows, and there's a good reason for that. What did Monsieur Colbert say about minimizing the hissing? Some things never change.

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