The fiscal challenge

One of the ways in which to summarise the “[economic] reality of Utopia” is to observe how these socialists engaged in certain key debates in the nineteenth century. Challenging the way in which wealth was distributed, the socialist projects examined the fiscal question and how the State was funded.

Where could the financial resources for the socialist project be found? Who should pay, in order to meet the dual principle of economic efficiency and social justice? When we mentioned above the issue of distributive justice, we observed that it ultimately led to “the inequality of duties”. The socialist formulas for the distribution of wealth can thus be inversed and used to identify their recommendations for contributions to the State budget. These socialists were all in favour of progressive tax in the name of the principle of the “ability to pay”, supported, among others, by John Stuart Mill. They accused the fiscal system at the time - a system known as the quatre vieilles (four taxes) that relied heavily on indirect taxation - of ultimately contributing to a “regressive or backward progressive” tax system.^[240] This was at the heart of Emile Pereire’s criticism (1832) of the July Monarchy’s first budget and echoed the republican socialists during the 1848 Revolution who called for a single tax on income and capital before envisaging an eventual tax-free society.

Progressive property, income and inheritance taxes

Perceived as a measure for the State to build up its financial power, tax was considered by Saint-Simon as a negative form of currency circulation that all too often prevented the development of “industry” to the benefit of idle interests. Regretting, with regard to taxation, that “laws have always been made by owners and capitalists, and always reduced to results favourable to their authors” (Decourdemanche 1831, 856), disciples - essentially Enfantin, Emile Pereire, Decourdemanche and the young Michel Chevalier - retained Saint-Simon’s two proposals in their developments on taxation.

The challenge was not only to fund the State through fair taxation based on ability to pay but also to see taxation in its capacity to guide the circulation of capital. In addition to taxation’s budgetary function, the Saint-Simonians anticipated its economic functions aiming to guide economic behaviours, and its social functions to reduce inequalities. They thus adopted a very functionalist conception of taxation that can be summarised in six points.

(1) Taxation should leave the necessary free, and “sanction” the superfluous by virtue of the capability principle (rather than by virtue of an egalitarian principle): “if taxation is to be properly assessed, it must be levied only on those who can pay it, without reducing what is necessary, since the State must not aim to equalise well-being brutally, but to relieve the miseries of life” (Pereire 1832, 35). Giving primacy to consumption taxes was, according to Decourdemanche (1831, 955-6) “the worst rule of distribution” since these taxes were more onerous for working-class populations. From the 1830s, the young Saint- Simonians therefore called for the abolition of so-called “consumption” taxes - on salt, tobacco and beverages - as well as customs duties. Exempting low incomes was the first principle of tax justice.

(2) The loss of income caused by the abolition of these taxes could be compensated by a surcharge on land tax whose successive reductions were regretted by Decourdemanche and Emile Pereire, among others: “at no other time has the weight of public taxes been lighter for large landowners” (Pereire 1832, 24). The Saint-Simonians considered land tax to be the most legitimate tax.

(3) The Saint-Simonians simultaneously recommended that fiscality should not hinder production and that it should accelerate the circulation of capital. Stimulating production required rethinking the patente (professional levy) and contribution personnelle mobiliere (personal property tax). Also, to be effective, taxation should also be thought of in terms of guiding economic behaviours.

On this point, Decourdemanche considered that a high tax (the timbre or stamp) on registered securities (especially commercial bills) was an infallible way to increase the conversion of registered securities into bearer bonds. Left unencumbered, these converted securities would circulate widely and be easily exchanged. According to Decourdemanche, providing such an incentive from a fiscal point of view was a way of reducing the cost of capital and eventually ensuring that “he who brings forth a new production from matter [receives] a greater share in that production than the idler who merely lends the raw material” (Decourdemanche 1831, 635).^[241]

(4) So that taxation could target each person’s ability to pay, the Saint- Simonians suggested that tax should be directly assessed through income.^[242] This tax should be calculated on the previous year’s income to attain assured values and avoid eating into the capital intended for reproduction. At the time, precise knowledge of each taxpayer’s income was perceived as inquisitorial, but Decourdemanche brought attention to the merits of the English income tax system in which “taxpayers are taxed only according to the income that they themselves declare” (Decourdemanche 1831, 993-4). This opened up a host of horizons destined to make the tax authorities aware of the income of each category of individual - landowners, civil servants, the industrial (worker) class and capitalists. The main aim was to tax non-labour income, and this was then partly enshrined by the use of a progressive scale.

(5) Progressive income tax was thus justified by the Saint-Simonians to take into account how the income had been obtained. The source of the income and the social function of the taxpayer were decisive in establishing the tax scale. Although progressive taxation was largely ignored by Adolphe Thiers, then Minister of the Interior for whom proportionality was the unsurpassable limit of taxation, the Saint-Simonian project of progressive taxation, despite the low rates advised,^[243] re-established the earlier recommendations of Montesquieu, Condorcet, Say and Sismondi.

(6) The Saint-Simonian fiscalists also recommended applying progressive taxation on inheritance as a way of countering the heredity of ownership - a principle encompassing “all the institutions that enshrine the exploitation of the worker by the idler” (Enfantin 1831a, 292) - and moving towards the Saint-Simonian ideal in which “the only right to the instruments of labour will be the ability to use them” (Barrault et al.

1830, 115). The Saint-Simonians interpreted property and its mode of transmission as social conventions, and not in terms of natural rights. While liberal economists considered that inheritance, an integral part of the right to property, was a powerful driver of economic activity - imposing hardships and shaping savings (Steiner 2008) - and that it would be dangerous to ignore this sentiment of family solidarity, L'Organisateur emphasised social antagonism by responding that “[the] right to property enshrines [admittedly] a hereditary privilege for idleness [but] condemns the working-class masses to indigence and debasement” (L'Organisateur 1830, 121-8).^[244] ^{^[245] In particular, it was because the distribution of national wealth - especially land - could not be abandoned and left to the chance of filiation that “enregistrement¹ (stamp acts) intervenes in all the changes that property undergoes, only to take, for the benefit of society, a share of the advantages that possession of the land confers” (Pereire 1832, 33). To be more precise, the Saint-Simonians were already calling for the progressive taxation of inheritance. The progressive scale needed not only to be applied to the amount of the inheritance but should also take into account the degree of kinship - transmissions between collateral heirs and non-relatives should be taxed more. One particularity of the Saint-Simonian project was that it precluded any succession beyond the sixth degree: at this stage, the inheritance became the property of the State and was thus socialised. Here again we should note how ahead of its time Saint-Simonian thinking was: in France, it took almost a century for the progressive taxation of inheritance to be institutionalised.
For a capital tax: the compensatory theory
In calling for a tax on assets (via the land tax) and their transmission (via inheritance tax), the Saint-Simonians wished to prevent the industriel (worker) from turning into a rentier (annuitant).
Inequalities arising from the luck of one’s birth, totally unrelated to an individual’s intrinsic abilities, could be reduced by applying a progressive scale. Taxation was once again a burning issue during the 1848 Revolution. The Luxembourg socialists aligned themselves with the Saint-Simonian arguments in favour of progressive taxation, and Pecqueur justified this progressive taxation with the argument for liberty borrowed from Montesquieu: with tax being a function of the liberty enjoyed by individuals - its rate should increase in proportion to subjects’ increased liberty and decrease in proportion to their increased servitude - it was the liberty to live without working that the tax should target as a priority. In Qu'est-ce que le socialisme? Pecqueur explained that by enshrining the appropriation of land and the monopoly of instruments of labour, society had granted “free, perpetual social credit to certain families with the right to arbitrarily hand down [their assets] and with this privilege given to capitalists, to establish a very onerous private credit on these instruments of labour”. If society had freely conceded to some people the use of capital, it should do so for the benefit of everyone: taxation was thus considered from a compensatory perspective^[246] as funding a social debt. It was from this perspective that Pecqueur introduced capital tax into his fiscal reflection. But in doing so, at the same time, he distanced himself from the definition given by Emile de Girardin (1802-1881), an insurance tax theorist, which in his view enshrined individualism:^[247] “taxation transformed into voluntary insurance” wrote Pecqueur, “implies the bold negation of any social progress, any solidarity and any justice on Earth: it is the apotheosis of savage egoism!”^[248] From a different perspective, Pecqueur justified capital tax by pointing out that capital “bestows rights”: it is security for those who possess it. Because it guarantees the full ownership of one’s right to exist and conditions for development, capital endowment is a privilege that should be extended to all.
Otherwise, explained Pecqueur, those endowed with capital would improve their conditions for development by condemning the chances of development of those who do not have it and on whom the usury of capital weighs heavily. Capital tax was therefore a way of reconfiguring material endowments by reintegrating those who were excluded from social credit. Capital tax as a “compensation for all proletarians’ deprivation of any share in the use and fruits of the land” would thus become, wrote Pecqueur, a veritable “institution of solidarity” (Pecqueur 1850c, 37). Anticipating the conception of taxation specific to solidarity at the end of the century, Pecqueur was more innovative than the Saint-Simonians for whom taxation was better understood from the angle of economic efficiency and “meritocratic” justice than from the rhetoric of solidarity and equality. However, both traditions considered that inequalities were the result of an economic organisation based on private property passed down through inheritance. They therefore suggested using tax to limit property rights and the constitution of private incomes. But, ultimately, these positions on taxation were only transitional phases: socialist reflection went beyond the mere question of tax and also covered borrowing and, ahead of its time, social contributions.
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Source: Faccarello G., Silvant C. (eds.). A History of Economic Thought in France: The Long Nineteenth Century. Routledge,2023. — 438 p. 2023

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