The Tax Trap

The Tax Trap

A long line of critical fiscal theorists has pointed to the limits of financing a politics of emancipation through levies on a regressive economy. We need to heed their warnings today.

A supervisor at Green City Growers Cooperative in Cleveland packages lettuce with employees. (Duane Prokop/Getty Images for

“The State cannot cease to be a class State so long as its public finances remain class-bound at every level,” declared Rudolf Goldscheid, an Austrian novelist, economist, and socialist, in his 1925 essay “A Sociological Approach to Problems of Public Finance.” For Goldscheid, this binding took the form of the state’s fiscal dependence on taxes drawn from the incomes and profits of the wealthy. While liberals and social democrats waxed rhapsodic over the social programs that could be funded via progressive taxation, Goldscheid cautioned that this arrangement provided their opponents with the fiscal leverage needed to veto those very policies.

Goldscheid’s critique of what he called the “Tax State” has had a recent revival. In 2018, Stephanie Kelton, an economist and prominent advocate of Modern Monetary Theory (MMT), pointed out that although progressives may want to “break up the banks” and “shrink the size of the financial sector,” they also want to finance social programs through taxing that very sector. This, she said, was a contradiction: it would leave those programs “completely dependent” upon “the very thing that you loathe.”

That progressive taxation can serve as a barrier to progressive transformation can seem counterintuitive in an era when tax rates on the wealthy are already criminally low and tax evasion criminally high. Nonetheless, the work of Kelton, Goldscheid, and a long line of critical fiscal theorists exposes the limits of financing a politics of emancipation through levies on a regressive economy. With few exceptions, we cannot expect speculative and extractive firms to willingly fund reforms that will lead to a green and equitable economy—in other words, to dig their own graves. Nor can we expect taxing the profits of those sectors to make up for the broader social, environmental, and economic destruction they cause. Above all, we cannot allow our political capacity to be constrained by fiscal dependence upon our political opponents.

Only by democratizing public finances can democratic policies be firmly established and defended. But how can this be done? For traditional socialists like Goldscheid this meant displacing the for-profit sector and gradually moving profitable enterprises in a more public or cooperative direction, thereby allowing citizens to appropriate surplus value directly. Kelton and other supporters of MMT, by contrast, argue that the U.S. Treasury already has monopoly control over the creation and issue of U.S. dollars: we have only to realize and seize that power in order to finance the future we want.

These seemingly divergent critiques can be brought together for progressive ends in the United States. We can follow Goldscheid and his successors by developing democratically owned forms of public wealth creation where progressives are currently strong, particularly at the...