Give Me Liberty and Give Me Taxes

On a cold winter evening in 1773, dozens of mechanics and artisans carrying axes and clubs made their way to Griffin’s Wharf in colonial Boston. They called themselves the “Sons of Liberty.” Within a few hours, they had thrown 90,000 pounds of cargo from three ships into Boston Harbor. That cargo was British tea. The Boston Tea Party, as it is now known, is commonly recalled as evidence of Americans’ deep-seated and reflexive opposition to heavy taxation. But there is a problem with that familiar narrative: it is untrue. The British government wanted to lower, not raise, duties on tea to prop up the revenues of the East India Company—a corporation integral to the British colonial project—after the collapse of a European banking bubble left the company nearly insolvent. Parliament, as part of a bailout deal, was offering the company a new corporate tax break. Those in the American colonies were not in favor. Samuel Adams, one of the founders of the Sons of Liberty and later a signatory of the Declaration of Independence, denounced the act in a letter to Benjamin Franklin, alleging it would be “introductive of Monopolies,” which he viewed as “dangerous to Publick Liberty,” particularly when “under the direction and Influence of Government.” The truth about the Boston Tea Party would be little more than an amusing piece of historical trivia were it not emblematic of a widespread and consequential misunderstanding of U.S. history. There is a long-standing trope in American life that equates taxation with tyranny. But throughout history, both in the United States and around the world, the reverse has proved true. Free, democratic countries tend to be high-tax countries, because taxation and democracy reinforce each other. Citizens of democracies are more willing to pay taxes because they have a say in how their government is run. The high levels of revenue that result allow the government to provide good lives for its citizens, reinforcing their belief in the democratic system and encouraging their participation. Moreover, the institutional capacity governments need to tax their populations—both to collect the taxes and to manage revenue—makes that government more able to act in other areas and, therefore, better able to fulfill the public’s demands. Tyrants, on the other hand, avoid imposing taxes because they fear the obligations that come with any reliance on tax revenue. Taxation creates a mechanism of accountability and forces despots into a position they do not want—that of dependence on their people. POWER TO THE PEOPLE The global pattern of taxation and representation is more than a correlation. In fact, it was taxation that provoked the issuing of Magna Carta, one of the earliest charters to enshrine the idea that power is both bounded and legitimated by the consent of the governed. In England, in 1215, King John and a group of rebellious barons sought to come to an accord about, among other issues, the king’s demands for higher taxes. The resulting document asserted that to impose extraordinary taxes, the king must summon the nobles and acquire “the general consent of the realm,” a system of authorization that was to be organized and defended by an elected council of 25 barons. Although it would take centuries for the proposed representative assembly to develop, it eventually became what is today the British Parliament. Representation did not limit the power of John’s successors to tax; on the contrary, Parliament’s role lent a new authority to regal demands, making it easier to raise revenue. In France, by contrast, the ancien régime assembly known as the Estates-General never became an effective legislative body. As a result, there was no institutional limit on the French kings’ tax demands but also no mechanism to encourage the compliance of the nobility. The power of those monarchs was nominally absolute, but they were persistently strapped for cash. Then, as today, regimes tended to have either representation and high taxes or despotism and low taxes. Today, the countries that collect the most tax revenue are also those that score the highest on international measures of democratic practices. The most rigorous comparative analyses of democracy come from the Varieties of Democracy Institute at the University of Gothenburg, including the V-Dem electoral democracy index, which accounts for suffrage and election fairness; freedom of expression, press, and association; and other pillars of democratic practice. In the 17 countries ranked in the top ten percent of the electoral democracy index, taxes at all levels of government make up on average more than 35 percent of each country’s GDP. In Denmark, which consistently tops the list, taxes make up 44 percent of GDP. In the world’s least democratic countries, on the other hand, taxes typically make up a comparatively small share of GDP. In Turkey, for example, taxes make up 24 percent of GDP. This pattern holds even in big economies. In Russia, tax revenue makes up approximately 30 percent of GDP, though data can differ by source; in China, the proportion is only 20 percent. This dynamic emerges most clearly in countries that bear a “resource curse.” These states, rich in minerals or other natural resources, are often ruled by authoritarian governments and have extractive economic systems that prevent the country’s wealth from reaching its people. In such cases, natural resources provide leaders with an alternative to taxation; when leaders can excavate wealth from the ground, they are not obliged to raise it from their citizens. They have little incentive to make themselves answerable to the people and can evade the demands for accountability that a system dependent on taxation typically produces. This focus on extraction also precludes the need to develop the kind of competent bureaucracies that can administer a robust tax system, exacerbating the inefficiency and corruption that so often plague authoritarian countries. The resource curse is a curse of low taxation. THE PRICE OF DEMOCRACY The United States, which has long had relatively low taxes compared with other developed democracies, would be wise to learn from this lesson. U.S. total tax revenue represents about 26 percent of GDP, compared with the Organization for Economic Cooperation and Development (OECD) average of about 34 percent, with 35 percent in Canada, 34 percent in Japan and the United Kingdom, and 38 percent in Germany. Moreover, U.S. spending has long outstripped its relatively meager tax yield; the 2025 U.S. federal deficit was about $1.8 trillion. The U.S. dollar’s status as the world’s reserve currency might be understood as the United States’ own kind of resource curse. In recent decades, Washington has used its unparalleled access to credit to fund immense, highly regressive, and increasingly unpopular tax cuts. Debt held by the public is currently over $30 trillion, and last year’s tax cut legislation—which a majority of Americans opposed, according to polling by the Wall Street Journal—has pushed debt projections still higher. By 2030, it is projected to equal 108 percent of GDP, higher even than its level during World War II. As the second Trump administration undermines and politicizes the Internal Revenue Service, these revenue shortfalls will be exacerbated. In 2025, a quarter of the federal tax agency’s workforce and more than three-quarters of its senior leadership were pushed out by the administration. This unprecedented loss is a stark reversal for an agency that had been on a steeply upward trajectory. The 2022 Inflation Reduction Act provided the IRS with an infusion of new funding that had allowed the agency to begin modernizing its aged technical infrastructure, enlarge its long-depleted workforce, and invest in new programs to make paying taxes easier and more secure. But much of that funding was clawed back by Republican representatives in Congress, and with last year’s massive reductions in staffing, the agency’s progress has ground to a halt. As it is, around $600 billion in taxes escapes annual collection, mostly because the IRS has lacked the capacity to hold accountable those high earners who underreport their income. According to research by the Yale Budget Lab, the recent workforce reductions will eventually reduce revenue by hundreds of billions more. U.S. President Donald Trump has also attempted to implement a system of tariffs by fiat, saying in his State of the Union speech in February that over time, tariffs will “substantially replace the modern day system of income tax.” The tariff regime has certainly brought the president personal gains—witness the gifts he has received from foreign leaders seeking reductions in U.S. tariffs—but the profits will not extend to the public purse. Even a steady and coherent system of tariffs simply could not replace the revenue produced by income taxes. The president’s tariffs have been applied so haphazardly and with such frequent reversals as to substantially reduce the limited revenue potential they had. Moreover, even the tariff revenue that has been raised so far may have to be refunded following the Supreme Court’s ruling in February that rejected Trump’s imposition of broad tariffs under the International Emergency Economic Powers Act. Trump’s desire to make it harder for the U.S. government to raise money from the populace might seem a strange decision for someone moving to consolidate power. But when viewed in light of the links between taxation and representation, the administration’s approach to taxation fits with a larger authoritarian campaign. In sabotaging the state’s capacity to raise revenue, Trump is leaving future leaders in a fiscal straitjacket that will make it far harder to implement expensive but popular investments in areas such as education, health care, childcare, and infrastructure. It will be difficult to maintain public faith in the value of electoral democracy if the state is too poor to enact the policies that majorities demand. PAYING IT FORWARD Fiscal erosion thus poses a fundamental challenge to American democracy, but most American policymakers think far too narrowly about what a revitalized tax system would look like. In addition to rehabilitating U.S. tax administration and reforming the tax code to ensure that the country’s wealthiest pay a fair share, policymakers must be willing to consider raising taxes on the middle class. Those on the left, especially, must turn away from a commitment to low but progressive taxation, which neither reverses wealth consolidation nor raises adequate revenue. Americans on the center-left tend to believe that making the tax system more progressive will resolve distortions in American democracy. These inclinations seem reasonable enough: for decades after World War II, high income and estate taxes helped prevent extreme wealth concentration, and their rollback has played a direct part in creating the country’s contemporary oligarchy. Since 1976, the top one percent of U.S. households have seen their average tax rates repeatedly drop—and their share of the economic pie double. These households now hold about 40 percent of all wealth in the United States. The very wealthiest of them now pay a lower share of their income in taxes than the upper-middle class. Over the same 50-year period, the bottom 90 percent of households have seen their share decline from about one-third to one-quarter of total U.S. wealth, and their taxes have not gone down. But progressive taxation is not the be all and end all of egalitarian economic policy. European democracies rely heavily on a value-added tax, a consumption tax applied at each stage of the supply chain. Like its fiscal cousin the sales tax, the VAT applies to goods and services and is relatively regressive. The United States collects only about 17 percent of its total tax revenue from consumption taxes, compared with an average of 31 percent across OECD countries. It is via these relatively regressive taxes that these countries fund the generous welfare programs that help maintain their citizens’ faith in government. Progressive taxation is not the be all and end all of egalitarian economic policy. The United States does use a similarly regressive tax—a broad-based payroll tax—to fund its major social safety net programs, Social Security and Medicare. Before the advent of these public programs in the mid-twentieth century, a third of older Americans were poor, and the elderly were less likely to vote than middle-aged people. But Social Security turned the elderly into the United States’ most reliable voters because the program gave them the time, resources, and incentive to participate in democratic politics. In the words of the political scientist Andrea Campbell, the program “made citizens.” Despite alarmism from Social Security’s opponents, a revised payroll tax system that included income currently excluded from the tax, such as income earned above the payroll tax cap, would fund Social Security indefinitely. Many Democrats, critical of the decades of tax cuts for top earners, propose responding to revenue shortages through increased progressivity. But the tax increases they propose for the country’s highest earners are far too meager to meaningfully affect the consolidation of wealth, and the cuts they propose for those well into the upper-middle class would be enormously expensive, foreclosing major new investments in the social safety net. Vanishingly few members of Congress have been willing to even mention the possibility of raising broad-based taxes. Survey and voting data, however, suggest that politicians’ fears of voter retribution are overblown. The sales and payroll tax are popular, even though these taxes are often the costliest taxes for low- and middle-income households, and American voters regularly raise both progressive and broad-based taxes through state and local ballot measures. Localities in California, Missouri, Nebraska, North Carolina, and elsewhere have voted to raise their sales taxes in recent years. Voters in Arizona, Colorado, and Massachusetts have approved raising progressive income taxes to fund education programs. TAX RETURNS To begin a serious conversation about how to reform the U.S. tax system, the country’s politicians will have to find courage. Reforming the system must begin with empowering the IRS: an effective and impartial tax service is both an economic necessity and a democratic imperative. But policymakers must also think far more expansively about the menu of federal taxes at their disposal. Taxes support democracy by both preventing or reducing the extreme wealth that corrupts political institutions and raising enough revenue to support a well-functioning government that invests in public goods such as education and healthcare. The United States’ weak and weakening progressive tax system achieves neither of these goals. Rebuilding the revenue system will not be easy. But the challenge of the endeavor is the challenge of U.S. democracy: convincing the public that their government is worth paying for. You are reading a free article Subscribe to Foreign Affairs to get unlimited access. - Paywall-free reading of new articles and over a century of archives - Six issues a year in print and online, plus audio articles - Unlock access to the Foreign Affairs app for reading on the go Already a subscriber? Sign In