‘A downward spiral of mutual suspicion’
On the following two points modelling of the expectations of taxpayers - taken as a class of stakeholders - may proceed in a straight-forward fashion. First, taxpayers expect government tax policy to deliver goodness in the form of tax benefits or burdens and, second, taxpayers expect that fairÂness considerations will frame how tax benefits and burdens are distributed.
These two points are to be taken in a transactional lens: taxpayers rightly expect government to deliver benefits promised without excessive spending on tax collections, for instance, and government, on its side of the transacÂtion, expects taxpayers to obey the tax laws and regulations as enacted and promulgated. In his study of British tax policy, Trusting Leviathan, The Politics of Taxation in Britain, 1799-1914, Martin Daunton argued that the British fiscal-military state relied, as much as it could, on incentivising‘The average price of peace and war’ 105 behaviour at the public-private intersection.43 Taxpayer misbehaviour, howÂever, may have a negative effect on tax-writing efforts in the national legislaÂture; I underscore that this is bad behaviour outside the chamber that entails intra-mural consequences.
During the legislative process, legislators should anticipate that (if enacted) its statute will change the real world as transactions take account of this new Act of Parliament. A lazy approach, however, licenses law-makers to guess at a pending law project’s impact on behaviours in the real world when they craft the statute. By the 1780s - at the latest - legislators expected themselves to account for the calculated impact of a new statute when they composed its text. They did this by bringing the best available technology to the task of composing the algorithms which statutory drafting consumed by the barrow-full. In a phrase, they wrote quality into their product during the design phase.
Daunton is speaking of taxpayer misbehaviour and this is, I argue, an instance of out-of-doors behaviour that could be and should be modelled by law-makers when they code the tax law at the commencement of this system enterprise, so to speak. Daunton launches his analysis at this point of departure. Taxpayers may be tempted to engage in a ‘downward spiral of mutual suspicion’. When individual taxpayers suspect others of cheating, the resulting ‘spiral’ of bad behaviour - resting ‘on guesses and gambles about the behaviour of others’ - degrades incentives which would otherÂwise stimulate taxpayers to comply voluntarily with tax laws.44 When this takes place, Daunton argues, law-makers will be forced to take account of taxpayer cheating. This reaction will drive up administrative costs. TreasÂury officials will seek greater funding to hire revenue officers, arguing for more aggressive surveillance of potential tax dodgers. As taxpayers observe enhanced enforcement efforts - more guardians of finance on the streets, so to speak - they may conclude that tax cheating is on the increase, which, in turn, may discourage their tax-compliant behaviour.
Support for Daunton’s analysis may be found in 39 Geo. 3 c. 13, Section XCIV. This section appears in one of Pitt’s four statutes (in that session) levying his tax on incomes. Section XCIV discouraged landlord tax-cheating by alerting the taxpayer - who might be tempted to cheat - that ParliaÂment was well aware of the landlord’s temptation to fudge his tax return. The schedules reflected counter-measures taken. When government solicited trust from taxpayers, it was then obliged to go all in. That is, it must launch inquiries and fact-finding designed to apprise law-makers of the likely impact of tax regimes on taxpayer behaviour.
These procedural avenues, in trust, reinforced the taxpayers’ perception that the House of Commons had paid attention to the divergence between behaviour that its prescriptions expected and the lesser measure of compliÂance that taxpayers might deliver in their tax returns.
Working the marginal utility of getting taxpayers to comply - taken as its own program - requires some nice reasoning.
In Daunton’s example, thetaxpayer is called on to trust that the fiscal-military leviathan is not hiring armies of revenue agents. There may be tax cheating going on, but the casual observer is not informed - by squads of agents at work - that misbehaviour is widespread. Many sections of Pitt’s income tax legislation are based on such estimates of future taxpayer behaviour. In my counter-example, drawn from 39 Geo. 3 c. 13, Section XCIV, the legislature informed taxpayers preÂcisely how to cheat and then, naturally enough, detailed how this misbehavÂiour would be punished. The statute assigned small potatoes offences - ‘not exceeding twenty Pounds’ - to Justices of the Peace ‘residing near the Place where the Offence shall be committed’. Section CXXIII. In the latter section, the ‘poor of the Parish’ where ‘the Offence shall be committed’ were entitled to an equal share of the penalty imposed by the Justice of the Peace along with the ‘Informer or Informers’. Catching tax cheats becomes not merely a patriotic token of support for the war against Bonaparte but a means of funding parish charges to support the deserving poor. Ratting out tax cheats in your village, in effect, bought down your rates. Or, at least, Pitt could argue that the government’s policy coded this goal into its tax policy.
The foregoing analysis is based on that brought forward by Daunton. His study, Trusting Leviathan, surveys tax policy beginning at the turn of the nineteenth century and concludes at the outbreak of World War I. The modelling supplied by Daunton must be recast, however, given that this is a study on parliamentary procedure. In my rethreading, the fiscal-service state committed itself to deliver benefits and alleviate burdens on the following two counts.
First, government was obliged to treat all stakeholders fairly in the legisÂlative process. Stakeholders expected that procedures and practices would bind them. These norms would likewise bind legislators.
Stakeholders were entitled to assume that rule-compliant behaviour would prevail after they filed their petitions seeking legislative attention.Second, government must adopt procedures which are defensible as best practices. Stakeholders expect that legislators can explain why procedures most recently adopted represent an improvement over arrangements forÂmerly in effect. The legislative assembly must be able to explain why a goal requiring newly prescribed behaviour was feasible.
When a legislative assembly declared a new procedure or revised an existÂing one, members might not engage the real world with adequate knowledge and insight.45 The assembly should adopt new procedures only after taking testimony from stakeholders. This approach permitted members to inform themselves about stakeholder expectations. After the assembly composed new rules, it should also be prepared to revise any procedure that did not deliver the merit goodness and fairness. Deliberate and fact-based review and revision of procedures offered a stabilising path forward. This effort may be assigned the predicate ‘organic’. Rule changes must arise from the needs of the assembly. In turn, these needs take priority over the grievances, real or perceived, of stakeholders in the legislative process. Consideration of
‘The average price of peace and war’ 107 rule changes should not become an opportunity for stakeholders to convert the process of rule review and revision into a beggaring bazaar in which stakeholders, by class or enterprise, seek to gain advantages over their comÂpetitors. The legislature must avoid being sucked into a ‘downward spiral’ of stakeholder misbehaviour. Legislators must meet this challenge head-on by committing the assembly to organic well-modulated change.