The Wealth of Nations · Chapter
Capitation Taxes explained
This chapter examines capitation taxes, highlighting their inherent arbitrariness when tied to fortune and their inequality when tied to rank.
What happens
This chapter examines capitation taxes, highlighting their inherent arbitrariness when tied to fortune and their inequality when tied to rank. It contrasts the mild, uncertain English poll-tax system with the severe, predictable French capitation, noting that such taxes fall heavily on the lower ranks and function as direct taxes on wages, offering a sure but unpopular revenue.
Themes in this chapter
Role of Government
Contrasts the mild English approach to tax collection (accepting shortfalls) with the severe French system (ensuring full payment through arbitrary assessments).
Social Class and Inequality
Highlights how capitation taxes based on rank lead to inequality, as fortunes vary within the same rank, and how the burden falls disproportionately on the lower classes.
Characters to notice
- William III
Reign during which poll-taxes were implemented in England, with contributors assessed by rank.
Key passages
“Capitation taxes, if it is attempted to proportion them to the fortune or revenue of each contributor, become altogether arbitrary.”
Trying to base a head tax on each person's wealth or income makes the tax completely arbitrary.
Smith argues that assessing fortune is inherently uncertain and leads to arbitrary taxation.
“In the different poll-taxes which took place in England during the reign of William III the contributors were, the greater part of them, assessed according to the degree of their rank; as dukes, marquisses, earls, viscounts, barons, esquires, gentlemen, the eldest and youngest sons of peers, etc.”
During William III's reign, English poll-taxes mostly assessed people by their social rank, such as dukes, earls, and gentlemen.
Smith illustrates the practice of taxing by rank rather than by actual wealth.
“In the capitation which has been levied in France without any interruption since the beginning of the present century, the highest orders of people are rated according to their rank, by an invariable tariff; the lower orders of people, according to what is supposed to be their fortune, by an assessment which varies from year to year.”
The French capitation tax, in place since the early 1700s, taxes the upper classes by a fixed rank-based schedule, while the lower classes are taxed based on estimated yearly income.
Smith contrasts the French system's fixed rates for the elite with variable assessments for commoners.
“Capitation taxes, so far as they are levied upon the lower ranks of people, are direct taxes upon the wages of labour, and are attended with all the inconveniencies of such taxes.”
When head taxes fall on the poor, they effectively tax wages directly, bringing all the problems of wage taxes.
Smith notes that capitation taxes on the lower classes function as a direct levy on labor income.