The following post is unusually long and wonky.
When writing yesterday’s post  on Nancy MacLean’s scandalously reckless distortion of Jim Buchanan’s approach to tax reform, I relied on my memory of the 1980 paper that she refers to. It’s one that Buchanan co-wrote with Geoff Brennan. I first read this paper in 1984 when studying for my field exam, at Auburn University, in public finance. It made on me then a deep and favorable impression. This paper is reprinted under the title “Tax Reform Without Tears” in volume 14 (Debt and Taxes  ) of the Collected Works of James M. Buchanan. (Note that its original title is “Tax Reform Without Tears: Why Must the Rich Be Made to Suffer? ” I do not have ready at hand the original, 1980 version of this paper, but there is no reason to assume that this paper as it appears in Buchanan’s Collected Works differs in any way but its abbreviated title from the 1980 version.)
I re-read this paper last night (after putting up that blog post) and, in doing so, remembered just why I liked it so much when I first read it 33 years ago. It, like nearly all of Buchanan’s works, is deep, analytical, careful, germane, and – importantly – offers unique insights. My re-read of this paper only reinforces my memory that its message is not at all what MacLean seems to assume it to be. So please indulge me as I expose in more detail MacLean’s fabrications.
Here’s MacLean on pages 148-150 of Democracy in Chains (original placement of footnotes as indicted and as numbered in [brackets]); I quote her in full – and to a far greater extent than is necessary for the point of this post – so that you can get a full and honest sense of the contexts of her complaints on this score about Buchanan:
As a philosopher, he [Buchanan] told his readers, he believed that what was required to support an expansive public sector was profoundly unjust: a system of progressive taxation that would ask more of the wealthy. Buchanan’s early work was in public finance, and his first book addressed the growth of public debt. But his concern grew as the baby boom generation moved through its life cycle. With school populations growing and retired people organizing, and calls mounting for new government support and action of all kinds in the 1970s, public coffers became strained, with no relief in sight.
To be fair, Buchanan wasn’t the only one worried about this problem. One 1973 book, James O’Connor’s The Fiscal Crisis of the State, noted that the capitalist system, in order to survive, had to tack between the economic need for corporations to profit and reinvest to remain competitive in a changing market and the political need to rein in that accumulation so as to keep the system from losing legitimacy. Leftists like the author saw an emerging legitimation crisis, as some defined it. A case in point: By 1975, New York City had lost its equilibrium. Spending more than it took in through taxes, the city faced the prospect of default—but cutting services to the people set off revolt. Nationally, too, deficits were mounting. All Americans liked at least some government programs, yet few seemed eager to pay the higher taxes needed to keep the growing number of programs in the black. The pattern was hard to ignore. In fact, some members of the liberal establishment founded the Trilateral Commission in 1973, in part from concern that democracies around the world were becoming too demanding and unruly.
But for Buchanan, once again the issue was personal. “Why must the rich be made to suffer?” he asked pointedly. If “simple majority voting” allowed the government to impose higher taxes on a dissenting individual in the minority—“the citizen who finds that he must, on fear of punishment, pay taxes for public goods in excess of the amounts that he might voluntarily contribute”—what distinguished that from “the thug who takes his wallet in Central Park?” Why should the well-off, he was asking, be forced to pay for those people, as the popular euphemism put it? “So long as unanimity is violated,” was government action, in fact, truly “legitimate,” even if the people’s representatives were duly elected? Might “the confiscation through taxation of goods” from an unwilling person not be seen as “criminal”?
The problem was not, Buchanan took pains to clarify, one of bad or misguided people in power, but of the normal functioning of institutions without built-in guardrails, whichever party was in charge. It was not even a matter of one ideology versus another. The George Wallace voter who complained about his tax rate refused to give up his own “special benefits” (things like government-funded highways and unemployment benefits when out of work, a more empirically minded reader could add). So, too, Buchanan pointed to “the suburbanite who is most vehement in his opposition to cross-city bussing of his children,” yet never thinks about whether it is fair to “levy taxes, coercively, on all families to finance the schooling of children for some families.”
The West’s current operating rules exacerbated the trouble, Buchanan argued, by failing to establish ironclad rules for “curbing the appetites of majority coalitions.” The Limits of Liberty never provided actual examples. But like-minded readers could infer these coalitions from the daily news: unionized public school teachers or health care workers, say, joining with school parents or health care recipients to demand better services and higher taxes to fund them. Buchanan often noted that public employees could enlist the political process to their advantage; this really bothered him. In fact, he concluded, “there are relatively few effective limits on the fiscal exploitation of minorities through orderly democratic procedures in the United States.”
In the first quoted paragraph above MacLean writes of Buchanan that “he believed that what was required to support an expansive public sector was profoundly unjust: a system of progressive taxation that would ask more of the wealthy.” Yet she offers no citation to support her claim. Surely if MacLean had a quotation from Buchanan, or a page cite, that backed her claim that Buchanan believed that progressive taxation is, as she claims he believed, “profoundly unjust” she would have pointed her readers to that quotation or citation. But there’s nothing. MacLean here simply asserts, giving readers no clue to what, if any, particular works of Buchanan she might be referring.
Particularly hilarious (unintentionally so) is MacLean’s leaping from a mention of the fiscal woes of New York City’s government in the 1970s – and of the larger fiscal-policy challenges posed by such woes – to the conclusion that Buchanan took such challenges personally. What, really, does MacLean’s assertion here even mean? We can only guess. A hint is supplied by MacLean quoting in the text, immediately after accusing Buchanan of taking fiscal challenges ‘personally,’ part of the original title of the 1980 Buchanan-Brennan paper mentioned above: “Why must the rich be made to suffer?” My guess is that MacLean is here suggesting that Buchanan saw himself as an apologist for the rich and, to do his masters’ bidding, wrote a paper (with Geoff Brennan) that gives analytical cover to attempts to protect the rich from higher taxes.
An innocent reader of MacLean’s book would reasonably suppose that at least the first three of this paragraph’s quotations (after her quotation of part of the title of the 1980 paper) are from Buchanan’s and Brennan’s 1980 paper. That reader would be mistaken. Those quotations are from Buchanan’s 1975 book, The Limits of Liberty. To be sure, MacLean footnotes The Limits of Liberty at the end of the paragraph, but she treats the quotations from this book as if they are a fair representation of the argument in the 1980 paper. Yet in fact these quotations have nothing whatsoever to do with the message of the 1980 paper.
Confusing citation practices aside, what’s in the 1980 paper? And do MacLean’s quotations from The Limits of Liberty correspond to the message of that paper? Let’s first answer this second question: no (on which more elaboration below). Indeed, the impression that MacLean conveys of Buchanan’s meaning in The Limits of Liberty is the opposite of what Buchanan actually wrote. MacLean wants her readers to believe that Buchanan argued that any specific tax the value of which exceeds the value of the public good that the taxpayer receives in return is akin to the theft of a wallet. But here’s what Buchanan wrote in that part, from chapter 3, of The Limits of Liberty  from which MacLean quotes selectively; I put in bold the passage that belies MacLean’s interpretation of Buchanan:
Under a unanimity rule, decisions if made at all are guaranteed to be efficient, at least in the anticipated sense. Individual agreement signals individual expectation that benefits exceed costs, evaluated in personal utility dimensions, which may or may not incorporate narrowly defined self-interest. With a purely public good, the individually secured benefits, as evaluated, must exceed the individually agreed-on share of costs, measured in foregone opportunities to secure private goods. From an initial imputation of endowments or goods, the multiparty exchange embodied in public-goods provision moves each individual to a final imputation, which includes public goods, that is evaluated more highly in utility terms. Each person in the collectivity moves to a higher position on his own utility surface, or thinks that he will do so, as a result of the public-goods decision reached by unanimous agreement.
No such results are guaranteed when collective decisions are made under less-than-unanimity rules. Under simple majority voting, for example, a person may find that a majority decision for public-goods provision shifts him to a lower rather than a higher position on his utility surface. What are his “rights” in such a postconstitutional change? It would seem that, for the person in question, this sort of change could hardly be called a “contract.” Goods that he values are taken from him against his expressed desire. Coercion is apparently exercised upon him in the same way as that exerted by the thug who takes his wallet in Central Park. This manner of speaking is commonplace, but it tends to obscure much that requires careful analysis. The thief takes the victim’s wallet. We should agree that genuine coercion is involved here because the victim, the thief, and external parties agree and accept the property rights. The wallet was the victim’s by right of assigned and acknowledged ownership. Is this comparable to the situation of the citizen who finds that he must, on fear of punishment, pay taxes for public goods in excess of the amounts that he might voluntarily contribute? Is the collectivity, acting as directed by the effective decision-making coalition authorized in the conceptual constitutional contract, analogous to the thief? There is no question but that the collectivity is perceived in this image by many persons, and not only by those whose utilities may be directly reduced at a particular point in time.
This is one of the major sources of confusion in modern discussion of social policy, and it is related to a paradox of government that we shall examine in more detail in Chapter 6. If, as we have postulated, individual rights are defined as rights to do things with respect to some initial set of endowments or goods, along with membership in a collectivity that is empowered to act by less-than-unanimity rules, and, further, if these rights should be mutually accepted, it becomes inconsistent and self-contradictory for a person to claim that his “rights” are violated in the mere working out of the collective decision rules that are constitutionally authorized. At this point it is worth recalling once again that the analysis remains timeless. We are assuming that the same persons participate in the conceptual constitutional contract and in postconstitutional adjustments. From this it follows that, if a constitutional contract is made that defines separate persons in terms of property rights, and if these rights are widely understood to include membership in a polity that is authorized to make collective decisions by less-than-unanimity rules, each person must have, at this prior stage, accepted the limitations on his own rights that this decision process might produce. (Note that this statement need not imply that the prior constitutional contract was itself optimal or efficient. Note further that the justice or injustice of this contract is irrelevant here.)
In short, Buchanan argues here that taxes enacted under democratic rules of less-than-unanimity – for example, by majority rule – are not akin to a thug stealing a wallet if the constitutional rules under which the government operates are widely accepted by members of the polity. (The whole point of The Limits of Liberty  is to explore just what makes constitutional rules just. For Buchanan, it is unanimous agreement, at least conceptually, to the constitutional rules under which governments operate. [Note: I admit to not following Buchanan when he writes that “the justice or injustice of this contract is irrelevant here.” But this confusion doesn’t diminish the larger point about Buchanan’s project.]) Buchanan raises the theft-of-a-wallet example precisely to show why, in his view, libertarians who are more radical than he are mistaken to equate taxation with theft.
Now, finally, to Buchanan’s 1980 paper with Geoff Brennan. It is a paper rich in insights and deep in analysis. It is not easily summarized. But here’s my best shot: Because taxes incite people to alter their actions away from behaviors that generate taxable outcomes (e.g., earning monetary income) and toward behaviors that do not generate taxable outcomes (e.g., taking advantage of tax loopholes) – and because this action-altering effect is greater the higher is the tax rate and the larger is the number of ways to avoid taxes – among the unseen costs of taxation is the effort undertaken by taxed citizens to alter their actions. Here’s Buchanan and Brennan (page 287 in volume 14 of the Collected Works; original emphasis):
For this reason our discussion is cast in terms of the “exploitation” of tax loopholes by “rich” taxpayers – the object of so much indignation on the part of many tax reform specialists – although it is in fact somewhat more general. Both the horizontal and vertical equity cases for closing tax loopholes are overstated to the extent that there is any behavioral adjustment to tax loopholes at all. On that basis the relative importance of efficiency arguments correspondingly grows, and the possibility of genuinely consensual tax reform increases, together with its political practicability and ethical desirability.
In short, by 1980 tax loopholes in the U.S. had become so numerous that they, along with the high marginal rates of taxation, induced all manner of socially wasteful – i.e., inefficient – tax-avoidance activities, especially by the rich. Because (as Buchanan and Brennan argued) the bulk of the cost of exploiting loopholes falls on those who exploit them, the tax system was then inflicting costs on the rich that were higher than could be seen by looking only at the dollar amounts of taxes paid by the rich. This reality, therefore, opened a door to tax reform that was both politically feasible and ethically sound. Specifically, the rich would agree to fewer tax loopholes in exchange for lower tax rates. After such reform, the total cost to the rich of the tax system might not be much lower – although it would not be higher – than was the cost to them before reform. But with reform the amount of taxes actually paid to the government by the rich would be greater and the efficiency of the economy improved. Thus the original full title of this paper: “Tax Reform without Tears: Why Must the Rich be Made to Suffer?”
The 1980 Buchanan-Brennan paper that MacLean presents as if it is a plea to protect the rich from ‘suffering’ from high taxes – as if it is special pleading on behalf of the rich – is, instead, a highly analytical exploration of the possibility of reforming taxes in ways that would result in transforming much of the current expenditures by the rich on tax avoidance into actual tax payments. Because such tax reform would be appealing not only to the government and to ‘non-rich’ taxpayers and tax recipients, but also to the rich, tax reform that satisfies everyone in the polity – including the rich – is possible. In short, widely approved tax reform need not cause the rich to suffer.
Nancy MacLean completely misses the point of the 1980 Buchanan-Brennan paper. She appears to have judged the paper by only its subtitle, not bothering to read the paper itself.