The Coming Crisis of the American Tax State

Two weeks into the government shutdown, many eyes are on the federal budget. Now is as good a time as any to remind the public both why the US should properly be called a “tax state” and why that’s not a good thing for the country.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

In 1918, the Austrian political scientist Joseph Schumpeter delivered a now-famous lecture titled “The Crisis of the Tax State.” The question he addressed was whether or not the First World War would bring about a destructive fiscal crisis for European states. Would the burdens of post-war debt and taxation threaten to destroy these states? Many at the time believed that it would be difficult or impossible to fiscally recover from the enormous debts and tax liabilities incurred by states during the war. 

Schumpeter, however, concluded that the states of Europe would easily survive whatever fiscal strains might be caused by the war. After all, he noted, the states of Europe were well developed “tax states” by the early twentieth century. In the short and medium term, at least, the ruling regimes of Europe could essentially raise revenue at will, and the state organizations themselves thus faced no existential crisis. If the states of Europe did fail, he noted, it would be for some reason other than fiscal collapse, such as conquest or revolution. Nonetheless, “the hour will come,” he noted, that the drive to endlessly increase state revenues would eventually consume and destroy the private sector. But, in 1918, he predicted (correctly) that the day of reckoning was not yet at hand.