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A HISTORY OF TAXATION AND EXPENDITURE IN THE WESTERN WORLD by Carolyn Webber and Aaron Wildavsky (Simon & Schuster: $24.95; 653 pp.)

July 27, 1986|Truman A. Clark and NANCY RIVERA BROOKS | Clark is an economist with A.B. Laffer Associates and the author of papers about the financial history of the United States. and and Times Staff Writer

Carolyn Webber and Aaron Wildavsky's history of fiscal activities is an epic enterprise. Their investigation begins with the Mesopotamian city-states in the third millennium BC and traces the evolution of taxation, expenditure and budgetary procedures through to today's welfare states.

The chapter dealing with ancient societies reveals parallels to today's fiscal problems. Just as our profligate Congress can find at least $5 worth of new spending for every extra dollar of tax revenue, the tax receipts of ancient kings rarely exceeded the amounts they wished to spend. Similarly, just as modern tax reform seeks to lower tax rates to reduce disincentives to economic growth, early monarchs were aware that onerous taxation stifled productive activity.

Investigations of the past are valuable if they help us understand the present and anticipate the future. In this regard, a well-structured history of taxation and spending could make a contribution to the contemporary public debate concerning the federal budget deficit. Unfortunately, Webber and Wildavsky's study is not designed to do this. The authors employ a theory of budgetary cultures to explain the evolution of taxation and spending. At best, their theory is a descriptive device.

According to Webber and Wildavsky, three types of societal organizations exist: hierarchical, market and sectarian. The preferences of each type of regime determine its approach to fiscal policy. Hierarchical regimes, striving to preserve and extend authority, spend and tax at high rates. Market regimes, promoting individual opportunities and free exchange, spend and tax as little as possible. Secretarian regimes are egalitarian and opposed to established authority. They spend as much as possible to redistribute resources, but their rejection of authority reduces their ability to raise tax revenues.

Supposedly, all societies are coalitions of these types of regimes. The spending and taxing patterns that emerge depend on the relative strengths of the competing regimes. The stronger the hierarchical element, the higher are both taxes and expenditures. The stronger the market forces, the lower are taxes and spending. The stronger the sectarian faction, the higher is spending and the lower is taxation.

A fundamental weakness of this approach is that it cannot be tested in its present form. The theory predicts that a nation's taxation and spending will change as the relative strengths of its governing factions change. However, objective measures of the relative strengths of hierarchies, market forces and sects are not presented. Since shifts in the relative strengths of factions are not qualified, predictions cannot be made of when and by how much a nation's levels of taxation and spending will change. Thus, the theory cannot be verified by comparing its predictions to actual fiscal policy changes. Instead of using changes in cultural variables to anticipate budgetary changes, Webber and Wildavsky sometimes employ fiscal changes to infer when shifts in the balance of cultural power have occurred. For example, the authors state that "it is important to understand that throughout the Western world since 1955, defense had dropped drastically as a proportion of national product and of the budget itself. Sects, we conclude, have been growing at the expense of hierarchies."

When they do venture to predict fiscal changes, Webber and Wildvaskey's forecasts appear to be wide of the mark. Discussing America's income tax, the authors claim "the reigning ideology favors a moderately progressive tax with major exceptions. This ideology is based on compromise between hierarchical and market regimes. Not until sectarianism becomes strong enough to propose a more egalitarian alternative will there be a serious challenge to the ideology embodied in the tax code." If the tax bill recently passed by the Senate becomes law, a significant break will be made from the existing tax code. Tax rates will be lowered and progressively reduced. The focus of income tax policy will shift from the redistribution of income to the promotion of economic growth. Webber and Wildavsky can explain this development by saying that market forces are in the ascendancy today, but the present round of tax reform certainly is not the egalitarian-sectarian type they predicted.

How will the current problem of unbalanced budgets be resolved? According to Webber and Wildavsky, "unless hierarchy and markets grow stronger or sects weaker, there will be no balance, for balance among budgets requires a corresponding balance among regimes." What insight does this statement offer? What policy recommendations follow from it--that sectarians must be locked up if budgets are to be balanced?

In addition to the vacuousness of its theory, this book is marred by platitude. We are told that "If the history of budgeting (along with many other histories) teaches us anything, it is that problems never stop." Then we learn that "unanticipated consequences must be older than recorded history itself." No doubt, but among those problems that never stop the one most in evidence here is that of indulgent editing, whose unanticipated consequence is the reinforcement of skepticism about the rest of the book.

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