HILLEL AND THE TAXMAN
Hillel the Elder’s fame rests on his use of logic for deriving Talmudic law and this talent also relates to his three questions about Jewish moral behavior (see: ”Avot” or “Ethics of the Fathers”, Chapter 1 verse 14). These questions are presented below. They are applicable to many attitudes and responses that individuals take and also pertain to the community at large. Amongst the public and social money matters, this includes a nations’ methods for taxation. This does not apply only within the Jewish ethical boundaries but has great significance in more general situations.
Although in practice it is not normal to base financial decision-making on Hillel’s three criteria, these aspects of our social status are significant when broadly considering the formation of our national income. In the following discussion, each of Hillel’s questions is examined and an answer provided, regarding our experiences and feelings when we are taxed. These responses help to explain the significance of this social obligation, so that the nature of the tax burden and the discharge of its responsibility on our community can be better appreciated and understood.
The First Question: “If I am Not for Myself, Who is for Me?”
Mostly, people comply with their nation’s tax demands, without making it a subject for public outcry. This apathy boarders on hypocrisy, since as individuals these citizens do not readily accept the right of government to penalize each for his or her personal achievement. Indeed, it is only by coercion that tax payments are extracted from the employees’ hard-won wages, the family-purchasers’ goods and services, the businesses’ excesses of income-over-expenditure, the investment-companies’ yields, etc. This general remittance to the public purse results in the tax-payer having less purchasing-power or investment-ability. Then the tax burden seems to retard what otherwise would be a more viable, active and satisfying home life or business; whilst freedom from its duress would allow the tax-payers to enjoy a raised living standard.
This attitude is a natural reaction to the imposition of the tax and it is no surprise that many would-be tax-evaders search for ways where a reduction in or elimination of the tax payment may be possible. Both economically and emotionally we reluctantly accept our inability to resist this impersonal process of confiscating some of our wages or effective purchases. If we appear too willing to remit part of them, then we are seen as being weak and spineless. So Hillel’s first more-general and significant question is about who else will support a person or firm that fails to take full economic advantage of a business situation, if the originator is too bashful or incapable of standing-up for his or her opportunity-rights.
Such an approach falls within the limited subject of microeconomics of the family or company, where the competitive nature of the activity inhibits the expression of any human or social feelings outside of this small clan. Every businessman knows that he should aim to maximize the so-called profits. Economists and industrial psychologists alike, accept this simple egoistic ethic. In big companies, the cost of employing an effective legal team to by-pass the tax laws and avoid some of the payments can be considerably less than the sums that they would otherwise be obliged to render. Consequently, in industry, in politics and in nature too, the ability to compete results in the production of the most effective kind of output, the highest social standing or the finest quality of offspring. Except for family dues, any help given to weaker members of the human, animal or botanical community, reduces the security of the giver and dilutes the quality of the emerging produce, governing-power, species or genus.
However, this mercenary behavior carries with it a degree of short-sightedness. The planning of long-term changes is set aside from the more urgent competitive and instinctive needs of the day; indeed, the participants usually are unable to abandon their compulsion to succeed. As well as promoting their own product or activity, the temptation to harm a competitor cannot be ruled out. Until their struggles have managed to dominate a particular part of the market or business opportunity, these intending monopolists cannot relax nor look further ahead. But after the monopoly is established, this fierce competitive behavior is no longer needed.
Instead the monopolists may take advantage of the situation, since now they can concentrate on improving the product without having to strictly control its price. At this stage, how much the customer pays for the product is of less significance to the monopolists, because the consumer’s only alternative is to not purchase the goods item. Then the resulting price rise is generally accepted, provided that there is no chance for the product to be re-introduced by an entrepreneur, whose challenge of a lower price again would have to be contested.
Monopolies are in strong positions to avoid the taxes as compared to what smaller competing firms otherwise must pay. The monopolists can lobby or bribe politicians or even threaten regional collapse, when their organizations carry with them a sufficiently important sector of the economy. Instead of being burdened with the tax, they can claim subsidies from the governing power or purchase the patent rights to an improved technique or process, so as to suppress progress elsewhere and to protect their existing methods. The history of industrial growth and decline is full of such cases. Thus a variegated and prejudicial system for taxation of labor, produce, investment or gain and their material constraints, are closely related to the competitive element of business, which has the maximum exploitation of the market as it’s most basic and inherent goal.
These first answers deal only with the microeconomics aspects of the situation, where the questioned party does not yet view the situation from a more-distant perspective.
The Second Question: “And Being for Myself Alone, What am I?”
Hillel's second question by implication opposes this selfishness and greed. But its application to taxation introduces two related ways of taking a broader view. These are firstly by the adoption of a parallel selfish governmental attitude and secondly in regard to macro-economic ethics. These two views should not be very different, because the government is supposed to act in a neutral manner, to justly control the general economic situation for the greater benefit of the whole community, including those who deserve help but cannot manage by themselves. Consequently in playing the tax-man’s role, the government’s attitude is usually many-faced. As responsible members of the community we should be aware of this position too, so as to be able to judge its acceptability. Only after examining its various aspects from a super-egoistic or conscientious viewpoint, will we be well-placed to decide what is right and proper.
The government’s income, which balances the national budget, comes mainly from taxation. A remote observer’s assessment of the competent collection of an added tax should be done with the same detachment as when examining the effectiveness of stiffer trading conditions introduced by a competing company. Both actions are regarded as legitimate. But when the government raises certain taxes, it creates similar consternation amongst earners and producers as when a competitor cuts local prices in order to take-over the home market from a resentful rival.
Before the implication of Hillel’s second question is applied and when the interests of the community as a whole are not properly satisfied by government, these unbalanced social needs cause stress and opposition. This viewpoint is still comparatively simple, since it remains within the fields of microeconomics and politics. Governments often are far from ideal and they can favor certain fractions of the community to the detriment of others. Then there is a need for groups of citizens (workers in particular) to counter this bias with their own selfish demands; the ensuing work agreements between these sectors and management are only reached after strike action has gained due and reluctant acceptance of the workers’ claims. With the toleration of this kind of mutual selfishness, Hillel’s question is badly answered. It is like trying to flatten a tightly rolled bulletin, by re-rolling it at right angles to the axis of its previous curvature.
Secondly, when the government does behave in an unbiased way, aiming to provide for the greatest good, it surely is justified in using taxation for community purposes. What is relevant here is the individual attitude to the responsibility for supplying a common service to the whole nation and of maintaining a minimum living-standard. Unlike the self-serving interest of a competitor, the government should view its taxman’s role from a more distant perspective and with this ruling macroeconomics attitude the second question becomes significant. Then this authority is duly bound to use the newly taxed income to bring benefit to more of the public. In this way Hillel’s second question is positively answered, by adding to the social services and thereby relieving the adverse effects of any economic polarization within the community.
Having seen more of the picture, it becomes clear to tax-payers that the collected tax money contributes to either a community or a national project. We envisage this governmental policy as being altruistic in helping the greater community, which contrasts with the egocentric nature of self-interest and monopolistic greed, described above. Public services benefit much of the society, including the subsidizing of its poorer members, although in moral terms this improved situation is far from ideal. Many tax-payers still feel the need to donate charitably, whilst others rightly claim that their taxes exceed what they can reasonably afford to share. Hillel’s call for greater charity is loosely coupled to this situation. His double-negative corollary of the “Golden Rule” is about not offending one’s neighbor by not subjecting him or her to worse conditions than those acceptable to oneself. This modifies the Rule from a micro- to a macro-economics circumstance, converting taxation into an expression of ethics. This “largesse” redistributes the employment too, by introducing new community services.
We may compare this situation to that when untaxed earners spend more on personal items and family household goods, thereby raising the demand for these products and the associated business. Instead, the additional tax money now passes to government employees in return for their efforts to improve the local conditions. These services better satisfy the social demand, which is no less necessary but of a very different kind to private purchasing. However, after balancing the accounts for each policy, the alternate total sums spent and the employment provided amount to the same. The money simply takes a different course, where one party’s loss equals the other side’s gain. With the extra tax, different kinds of people will benefit, more of them being below average in their ability to earn and spend. They may not always deserve this bonus, but without prejudice this greater degree of sharing of income from heavier taxation results in no loss or gain in the rate of progress of the community as a whole, only its distribution is changed. Consequently, this effect should be judged according to merit.
Although some of the added tax may directly go to help the poor, when also used to develop the surroundings and improve the infrastructure it can worsen their long-term prospects too, because it tends to polarize the social system. The tax money comes mostly from the labor and produce of landless workers. However, the resulting social improvements to the community raise the potential usefulness and value of some of the land. The benefits of this pass to the monopolistic land-owners, who speculate in the land-values and hold some of the land unused. This makes the rest more costly and increases the ground-rent they charge for its right of access. Then the local improvements mostly benefit a comparatively small number of people. This permissible behavior arises from a previously established unjust legal system, which allows or even encourages this restriction of the opportunities for workers to earn a decent living, to obtain better work-training, education, child-care, etc. The expensive land and its more costly produce will reduce the demand for goods, eventually causing unemployment, poverty, squalor and hopelessness.
This process for the polarization of our society is inevitable unless by a prior and proper arrangement the advantage conferred by land-ownership is more uniformly spread. Morally the tax money for the new local investments should be gathered only from the owners of sites for whom the greater advantages subsequently will be felt. Hillel would approve of this anti offense-causing scheme, which resembles the land-sharing laws in Leviticus, chapter 19.
The Third Question: “And if Not Now, When?”
It might easily be assumed here that Hillel is appealing against our present state of apathy. Apparently he expects us to respond altruistically, by immediately distributing some of our wealth amongst the less-fortunate members of the community. In the broader application, when the government enforces this socialistic policy by an increase in the taxation, it should simultaneously widen the scope of its subsidies and welfare services. Then, compared to the situation prior to the added tax burden, greater numbers of poor people benefit financially, but with an increase in the loss of their self-respect, whilst the fewer wealthy ones are obliged to shed their excessive gains, for the scant knowledge of their superior moral capability to share.
This third question implies that no doubt still remains about making such a choice, although in fact this question does allow for a justifiable delay. So if and when this uncertainty exists, a more satisfactory answer would be for us to conditionally claim the need to re-examine the overall problem. Without being panicked by Hillel’s terse questioning style, we still have the reasonable alternative of finding a better means for this re-assessment. We may then defer our attitude to the public alms-giving by means of the greater tax, until more-complete enquiries have been made into its broader implications and effects.
To cover any remaining doubts, a comprehensive and methodical analysis is needed, which allows us to properly examine the entire macro-economy for any supplementary influences. These less-obvious aspects are relevant to the whole social system as well as to the moral effects, both on the recipients and on those being coercively relieved of some of their substance (in a style reminiscent of Robin-Hood). This realization provides a more complex picture than the two-sided well-balanced relationship presented above (whilst having already mentioned one such long-term consequence created by the speculation in land-values).
Feelings aside, the theoretical and logical macroeconomics model that the writer uses consists of a system of six functional entities, namely: Government, Landlord, Householder, Producer, Capitalist and Finance-Institution. Their idealized roles completely represent and cover all 19 different kinds of economics transactions that are possible within our social system, to provide for a full examination of its operation. Here, this system is taken as closed without including international trade. Aggregate properties of the entities are assumed, thus allowing for the use of this idealization in the subsequent analysis. (This diagram appears at the end of my other Blog on this website.)
It is as if a panoramic view of the community is taken, from a remote location. From this perspective, sufficient information is observed to fully resolve all the basic characteristics and typical features of each entity, whilst avoiding too much detail. Each entity performs specific and mostly unique actions, from which arise the resulting macro-economic exchanges of goods, services, opportunities and valuable legal documents, as the reciprocal flows of money circulate around the system. Within this arrangement, goods are consumed (for life-support), whilst human efforts are expended (by employment), durable capital is operated (by hire), land is accessed (by lease), money is invested (for dividends), goods are temporary stored (whilst processing), credit is advanced (for interest) and taxes are collected (for sociological benefit).
The classification of these exchanges involves various paired quantities (mostly being of roughly equivalent worth), which enable us to examine the activities of the whole system. They are expressed in terms of the value of the passing items that correspond with the amounts of their returning money-flows, which lead to a balanced state of equilibrium. Then every entity has incoming and outgoing money-flows, the numerical sum of each kind nearly always being equal. This is because any large accumulation of money is undesirable, nor is it likely except for the reserves of bank deposit-accounts as specified by law. The extension of credit is limited, but the sums being continuously advanced enable the maximum participation by the entities; their selfish aims naturally obtain the most benefit from making the least effort!
A disturbance in the operating conditions or in the money-flows causes the macro-economy to try to establish a new state of equilibrium, by an immediate call for altered rates of exchange. This effect spreads throughout the whole social system, until it becomes steady again. The process of re-distribution follows certain homeostatic and logical rules, based on the natural ways that the work, production, sale/purchase, hire, lease, loan, investment etc. are usually and endogenously transacted. This macroeconomics activity also depends on the specific structural arrangement of the system and on the particular decision-making criteria of the entities. It is subject to limitations, which more-specifically depend on the allocation of the three factors of production, namely: labor, durable capital goods and land. Then the resulting successive increments to these mutual flows should provide the greatest macroeconomic satisfaction, with the intent to give optimal overall benefit. When applied to all the involved entities, these changes are determinate and they are useful for short-term forecasting.
Assumptions are also made about the magnitude of the different quantities steadily flowing around the system, before it is subject to (frequent) disturbances. Unlike the results that were described in the previous discussions regarding the first two questions, this more-general realization takes the secondary effects into account, even before the specific pair of entities has necessarily reached its newly balanced state. Instead, this equilibrium presently being sought implies a “compound-agreement” between many of the flows, including any economic partiality or bias. As a consequence, it provides different results to those previously found. Whilst being less obvious, they are still relatively easy to understand and appreciate.
The structure of this basic model can be described in four independent ways, two of them are mathematical, one physical and one diagrammatic. These help a student or researcher to appreciate the general nature of our social system, to better understand it and to numerically calculate its overall response and short-term dynamics. Some examples of this process have been worked out by the writer, for the re-establishment of macro-economic equilibrium after the modification of its prior steady-state. In particular and for purposes of this essay, the analysis is applied to the government’s introduction of various taxation incursions. The cases examined are for: a) a reduction in the income-tax on wages, b) an increase in the income-tax and a parallel reduction in householders’ savings and c) the adoption of a tax on land-values.
The first result found from the analysis is that the above-mentioned numerical assumptions, used for providing its initial steady state condition of equilibrium, are almost arbitrary. In this simplified representation linear relationships between the variables are adopted. Provided that the system starts from a state of equilibrium, the sizes of its initial flow-quantities act only indirectly and they are virtually irrelevant. Having been thrown out of kilter, what is significant is how the system responds to the disturbances by making subsequent incremental changes.
The important properties that regulate the system’s response to this infraction are in the decision-making rules for its equilibrium-seeking and in its topology or basic structure, including the location where the exogenous disturbance is introduced. This is not the place to enter into many technical details, for which other writing is almost complete, but to present the results of introducing these three kinds of tax changes in their simplest manner, so that their initial trends are apparent, even though it can be seen that for longer time periods and without additional upsets, the system eventually returns somewhat closer to its original steady state.
a) When the income-tax is reduced, the householder has greater net income but the government has less. Then the householder spends more on personal consumption which raises the demand, particularly for luxury items. However the government’s negative influence on production is stronger and the total demand on the system becomes smaller than before. The production sector cannot respond instantly to the need for different kinds of products. So the transient response in seeking equilibrium reduces the total money-flows and lessens the macro-economic activity compared to what existed prior to the introduction of this change.
b) When the income-tax is increased, it allows for greater government participation and spending whilst the householder has less net income available for this activity. As well as receiving greater subsidies, the newly-resulting unemployed householders will gradually withdraw their savings to partly compensate for the reduced level of sustenance that they otherwise must accept. The producers gladly respond to these two kinds of change by slightly increasing the numbers of their employees and by the hire and use of more durable capital goods, even thought the householder’s demand for consumer goods is somewhat reduced. Then the initial overall response is in greater macro-activity, the demand having been partly decreased by the householder but considerably increased by the government. However, as the dole-money limit is reached and the savings are slowly expended, this demand cannot be maintained and the greater associated activity tapers-off in the long-term, to a level which is only slightly more than when the additional tax money was first invested.
c) Should a tax on land-values be introduced instead of an increase in income tax, scheme b), the transient effects are soon felt by the majority of the population, as more land is put into use. Before, when the some of ground-rent was regarded as personal income, it was taxed accordingly, along with earnings. Now instead, when the directly taxed rent does not exceed the above alternative of added income tax, the land-owners will pay less than with scheme b). So in practice, this new tax policy is adverse only to those land-owners who previously paid little income tax and whose prior exploitation of the tax-paying community, should already have been rectified on ethical grounds (both meanings intended).
Those whose land was not producing an income will find themselves paying this incentive tax on it. They will be “encouraged” either to sell their sites, or to make better use of them and to obtain an increased income. Many of the monopolistic land-owners will have less money to invest because they must now pay this tax directly out of the ground-rent. Then a higher proportion of this investment is transferred to and managed by the householders, whose greater average savings now become more readily available for use as capital. The numerical results obtained in modeling this change, show an overall benefit to the whole community, exceeding that previously obtained when the income tax was increased. Indeed one recent authoritative text on macroeconomics labels this progressive tax as of the most ideal kind, its claim being based on technical considerations alone, without reference to the ethics.
In conclusion, this discussion and analysis indicate that the tax money, which by implication Hillel would have us collect and share with the less-fortunate members of our society, should best be gathered from the potential usefulness of the land (regardless of how this land is actually being used), rather than from personal income. This basic method for providing national alms is not just one of technical superiority compared to income-tax (since the owners of the land are easy identified, the amount of the new tax relatively simple to determine and rather difficult to avoid). It also carries strong ethical advantages, because both the natural bounty and the infrastructural amenities, as otherwise conferred on its owner by the privatization of the land, should idealistically provide work-opportunities that are more uniformly and justly spread.
Much of the value and usefulness of the land arises from the density of the population in that same region. However, the withholding of this benefit from use was a crime that Hillel was not active in suppressing, nor could he rectify the resulting economic distress of the landless workers and slaves. This is not so surprising, because at the time the reigning despotic King Herod and his family owned and monopolized more than half of Judea. Today, an even greater proportion of it being controlled by the Israel Lands Administration, whose neglect of the ethical need for the equality of land opportunity-use (and the adverse effects of their stubborn refusal to recognize this requirement for social-justice) are not much better than what occurred in those ancient times of Herod, Hillel and the Sanhedrin.