--- [EMAIL PROTECTED] wrote: > I read the The Debate on the > Constitution and discovered that "direct taxes" seemed to be one of those > phrases that everybody thought he understood, but that in fact nobody > could actually define.
The distinction goes back to the French Physiocrat economists of the 1700s. In Physiocracy, there is a net product that comes from nature, which we now call an economic rent. A tax on the net product, or rent, is direct. Other factors, such as labor, do not have a net product, and a tax on these is ultimately shifted to rent. John Locke wrote along these lines also, so this proposition was thought of also in the UK. Locke wrote that all taxes are ultimately shifted to rent, and are therefore indirectly on rent. Consider a worker earning a substistance wage. If that wage is taxed, the worker goes below subsistence, so the employer will increase the gross wage to leave the net wage the same. This reduces his profitability, so he bids less to use land, and rent falls. So the wage tax is indirectly on rent. Thus, by this view, a tax on rent is direct, and all other taxes are indirectly on rent. This distinction between indirect and direct taxes drifted to America and into the constitutional convention, where it was only vaguely understood, which is why some thought it involved taxes on heads and slaves in addition to land. Interestingly, when the US Supreme Court knocked down the federal income tax in 1894 as violating the direct/indirect distinction, they referred to Physiocratic doctrine. Fred Foldvary ===== [EMAIL PROTECTED]
