I have recently been told twice, once in conversation and once online, that Adam Smith favored progressive taxation—on the second occasion at least, that he favored a progressive income tax. One passage from The Wealth of Nations was offered in support of the claim by both people, some additional ones by the online claimant. The passage:

The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.

Taxation in proportion to revenue isn't progressive taxation, it's proportional taxation—in modern terminology, a flat tax. The quote not only isn't evidence for the claim, it's evidence against it—important evidence, since it is the first of the maxims of taxation with which Smith introduces his discussion of possible taxes.





Not only is Smith not endorsing a progressive income tax, he isn't endorsing any sort of income tax. Reading further into the passage, he successively rejects taxes on income from capital, taxes on wages, and taxes on the income of professionals. The only income he approves of taxing is the income of government officials. What he is arguing for is a system of taxation whose effect is proportional to income, not a tax on income.





The online claimant offered a number of other quotes which he thought provided evidence that Smith was in favor of progressive taxation. One of them was actually evidence, not that he favored it, but that he regarded a tax that fell more than proportionally on the rich as tolerable--"not very unreasonable."





But the most interesting one was the following:

It must always be remembered, however, that it is the luxuries, and not the necessary expense of the inferior ranks of people, that ought ever to be taxed.

This was offered as evidence that Smith wanted to tax the luxuries of the rich rather than the necessities of the poor. It was offered in the same words, with the same interpretation, on a Daily Kos web page I found which was making the same argument and using the same quotes.





Here is the full paragraph whose first sentence is being (mis)quoted.

It must always be remembered, however, that it is the luxurious and not the necessary expense of the inferior ranks of people that ought ever to be taxed. The final payment of any tax upon their necessary expense would fall altogether upon the superior ranks of people; upon the smaller portion of the annual produce, and not upon the greater. Such a tax must in all cases either raise the wages of labour, or lessen the demand for it. It could not raise the wages of labour without throwing the final payment of the tax upon the superior ranks of people. It could not lessen the demand for labour without lessening the annual produce of the land and labour of the country, the fund from which all taxes must be finally paid. Whatever might be the state to which a tax of this kind reduced the demand for labour, it must always raise wages higher than they otherwise would be in that state, and the final payment of this enhancement of wages must in all cases fall upon the superior ranks of people.

Note, first, that the first sentence is talking about "the luxurious and not the necessary expense of the inferior ranks of people." Smith is arguing, not for taxing the luxuries of the rich, but the luxuries of the poor. Changing that to "the luxuries, and not the necessary expense of the inferior ranks of people" makes it possible to misread it as "the luxuries of the rich, and not ... ."





That misreading is impossible if you read the rest of the paragraph. Smith's argument is that a tax on the necessities of the poor will raise wages, hence be paid by the rich, and that one should therefor tax the luxuries of the poor instead. Not only is he not arguing for taxing the rich, he is arguing against taxing the rich.





There is another very popular misreading of Smith which was not made by either of the people I was arguing with, but does show up on the Daily Kos web page and in a variety of other places—the claim that Smith supported public schooling. The web page quotes (from another web page):

For a very small expence the public can facilitate, can encourage, and can even impose upon almost the whole body of the people the necessity of acquiring those most essential parts of education.

Smith has a long discussion of possible ways of organizing and funding education, in the course of which he argues both for and against a variety of alternatives, so it is easy enough to select out a passage which appears to be for government provision, such as this one. For an example on the other side:

"Those parts of education, it is to be observed, for the teaching of which there are no public institutions, are generally the best taught."

His final summary statement on the subject, however, is:

The expense of the institutions for education and religious instruction is likewise, no doubt, beneficial to the whole society, and may, therefore, without injustice, be defrayed by the general contribution of the whole society. This expense, however, might perhaps with equal propriety, and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either the one or the other.

Or in other words, some public funding of schooling is not unjust, but an entirely private system is also not unjust and might even be preferable.







The public can facilitate this acquisition by establishing in every parish or district a little school, where children may be taught for a reward so moderate that even a common labourer may afford it; the master being partly, but not wholly, paid by the public, because, if he was wholly, or even principally, paid by it, he would soon learn to neglect his business. It's also worth noting that the public involvement he is considering is much less than what we take for granted. Thus he writes, immediately after the sentence that the web page quotes:

Not, I think, an opinion that supporters of our public school system would be willing to endorse.





I find it amusing that the Daily Kos piece starts out with:





"Conservatives love to quote Adam Smith, the Father of Capitalism. But I doubt that many of them have actually read his works."



