Peter St Onge

At what point do the people rise up? Today I’ll look at taxes.

History is full of tax revolts. It’s a fairly popular pastime, if historians are to be believed. But when do they come? What’s the spark and what’s the gasoline?

Today we’ll look at one data point from Sun-Tzu’s Art of War.

Sun-Tzu argues that long military campaigns are unwise because they exhaust the people. Like elsewhere in his book, Sun-Tzu is very specific here: he says that long campaigns exhaust “seven tenths” of the wealth of the elites.

This is one of those oddly specific claims that sometimes strike westerners as hilarious. But Sun-Tzu was a historian, and lived in an era with plenty of case studies of war’s destruction. So it’s worth exploring his rule of thumb here.

The trick in history is that we don’t have good statistics. Even in the 20th century, statistics can be incomplete, biased, or poorly done. Before then, all bets are off — the statistics stink in history.

So we have two choices: either we completely ignore the past, and reinvent every wheel. Or else we estimate the past using these kinds of subjective commentaries like Sun-Tzu’s. The model is a radar, used not to “see” something but to estimate it’s location with fragments of data.

So let’s use this “radar” method on Sun-Tzu’s seven-tenths. One interpretation is that he thinks there’s an upper limit to the devastation that can be imposed on your own citizens. This would be consistent with modern economic “marginal analysis,” where people value a loss more as it grows bigger. So you take $10 from a billionaire and it’s not a big deal, but take his last $10 in the world and he’ll fight to not go hungry.

In this light, Sun-Tzu is saying that once you pass the 70% threshold people become desperate enough to shift from sheep to wolf.

We can translate this into a modern hypothesis, that the people will accept up to 70% tax rate with manageable protest, but go much beyond that and you’re likely to have problems. Now, we’re still a ways off in the US; spending at all levels of government in 2014 was about 42%. The highest spenders in the world, according to the OECD, are the Scandanavians at about 50%.

While these are high numbers, they’re still way off Sun-Tzu’s 70%. And the trends are not as bad as they might seem. While the trend is worsening, we’ve still got a ways to go: OECD average tax take grew about 4% between 1975 and 2010. At that rate the US wouldn’t get to 70% for another 250 years. Fortunately we’d have a “canary in the coalmine” as the Scandanavians hit this threshold about 100 years early (and still a century in the future!).

One caveat is that regulation was pretty primative in Sun-Tzu’s day. By one estimate these add another 11% to government’s “take,” bringing the number up to 53%. Still not 70%, though — this brings the breaking point closer, but still a century away on present trends.

A second big caveat is that this is all assuming past trends continue. History doesn’t have perfect case studies, so we don’t know what happens when an internet-and-computer wielding state gets the upper hand. So we could get to 70% much faster.

On the other hand, the State has become much cleverer at hiding its taxes — payroll withholding, and hidden regulatory costs might not stir the people the way that a direct requisition might.

Taking it all in, my guess is that this back-of-the-envelope “radar” tally suggests that current tax trends are plenty sustainable, for better or worse. Unless the trend changes significantly, taxes will likely continue rising slowly and, like the frog in boiling water, people will grumble and that’s that.

There may be other catalysts, of course — the “culture wars” or incessant stoking of ethnic and racial animosity could come to a head. But on current trends taxes won’t be the spark.

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