In the fifth book, "From the Sovereign or Commonwealth's Revenue," Smith postulated four "maximums" of taxation: proportionality, transparency, convenience, and efficiency. Basically, Adam Smith questions the state taxation on capital gain, arguing that other taxation would be more effective (the government had instituted the stamp tax, which had become very unfair to the less wealthy, since letters were a common resource at the time! ).
In this chapter he writes: "The necessities of life entail great expense for the poor. They find it difficult to obtain food, and most of their small income is spent to obtain it.
The luxuries and vanities of life are the main expense of the rich and a magnificent house beautifies and makes the best use of all the other luxuries and vanities they have.
A tax on house rent, therefore, would generally fall more on the wealthy.
It is not very irrational for the rich to contribute to public expenditure, not just in proportion to their income, but something more than that proportion."
The discussion of this passage is due to him saying that the rich would be able to pay a rent tax more fairly than the poor pay taxes on the land of their homes, for example.
According to Smith's model, government involvement in any area in which it is incompetent: productive area or commercial management, negatively impacts economic growth.
The needs of a free market and entrepreneurial nature of private people are at a speed above what the government, and its bureaucracy, can achieve.
Government interference, whether through bureaucracy or overtaxation, has a devastating effect on the entrepreneurial spirit of those who put capital at risk to produce.
The basic rule of economics: that the scarcity of a product causes its price to rise, and thus encourages producers to produce more and attracts new people to that production line.
At the other end, the oversupply of a product (more of the product than people are willing to buy) reduces prices and producers redirect energy and money to other areas where it is needed.
This clarity can be obscured when the government places taxes on all processes. It means that the state bureaucracy and its fees will end up defining part of the price, taking away the competitiveness of the product and even free competition.
Smith criticizes politicians and government revenue machines. Typically, governments claim that fees generally serve to keep the public machine serving the population and also to keep the war machine.
Remember that at that time, the strength of a nation was proportional only to the strength of its armies and the maintenance of logistical lines in case of war. Also, for the ability to pay off debts in case of losing the dispute.
Smith emphasizes that even if the money were set aside from future income to pay off war debts, it would rarely be used to pay off the debt.
Debate that politicians tend to spend the money on some other scheme that wins their voters' favor. He even mentions Machiavelli about the relationship between the people, the common people, and politics and its charms.
As a result, interest payments increase and war debts continue to grow, well beyond the end of the war.
He goes on to explain that financially guaranteed wars only harm the people and, in this case, the increase in taxes penalizes the productive sector.
If governments can borrow without guarantees, then they are more likely to wage war without such guarantees. The costs of war spending will burden future generations, as war debts are almost never paid by the generations that incurred them.
This is why Smith causes a rupture in the thinking of the time: they propose in this fifth book that translating the strength of a State into its military glory only leads, in the long run, to the collapse of the economy, solely to pay for the war machine.
At this point, even illustrates the Roman Empire itself in terms of military expenditures in terms of civil expenditures!
Smith defends taxes as long as they are fair and balanced and do not burden the poor. In other words, he advocates not going back to the times when kings charged absurd taxes just to support their castles.
It deals with this: "The subjects of each state should contribute to the support of the government, as far as possible, in proportion to their respective capacities; that is, in proportion to the income they respectively enjoy under the protection of the state.
government for the individuals of a large nation is like the expense of management to the joint tenants of a large property, who are all obliged to contribute in proportion to their respective interests in the property.
The observation or neglect of this maxim consists of what is called equality or inequality of taxation."
That is, just as in a condominium, each one contributes the condominium fee for the good of the building, both in administrative matters, as well as in matters of defense and maintenance, so it should also be the case in the case of government and its relationship with the citizens.
In any case, argues Smith, the government has the monopoly function of regulation and inspection, not of direct interference or competition with the private sector.
This justifies the taxes to maintain these functions, in addition to national defense and schools for those who cannot pay and health care for those who cannot contribute.
These issues are what guarantee equality in social differences: capital, from each one as it gets and for each one the benefits as they need it!
Cryptocurrencies, in this sense, are powerful tools for the financial market to be fair without state interference!
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