In his address to Congress on 28 April 2021, US President Joe Biden used a formula that was picked up by the press: “It’s time for corporate America and the wealthiest 1% of Americans to pay their fair share. Just pay their fair share.” (1) This formula can be traced back to various thinkers on tax fairness. One of them is Adam Smith. In this article, we discuss how he can shed light on the American president’s formula.
1. Introductory observation
One observation before we turn to Adam Smith. The phrase that has been quoted in the press – “It’s time for corporate America and the wealthiest 1% of Americans to pay their fair share” – ignores the repetition that is present in Joe Biden’s original speech on 28 April. Sometimes it is even limited to the single noun phrase “fair share.”
We have chosen to quote the whole passage, which includes the repetition of the phrase “pay their fair share.” For repetition has a rhetorical function which it is not appropriate to set aside. In the case in point, it aims, in the words of Olivier Reboul – who took as an example an extract from General de Gaulle’s Appeal of 18 June 1940 – to express an “intense emotion,” a “passionate sincerity” (2).
Presumably, this comment applies to Joe Biden’s original statement:
“It’s time for corporate America and the wealthiest 1% of Americans to pay their fair share. Just pay their fair share.”
This point is not purely formal. The figure of speech that the president used is intended to give weight to fairness, in this case fairness as applied to tax policy.
2. Adam Smith versus Joe Biden
We have chosen to refer to Adam Smith to shed light on Joe Biden’s comments. It must be said that this Scottish Enlightenment thinker, who was a philosopher and an economist, is often quoted in the context of reflections on contemporary economic problems, notably through titles of the form: “What would Adam Smith have thought?” We ourselves used a title of this kind in an article on the “CumEx scandal,” which dealt with tax optimisation practices (3).
It is also worth noting that a March 2021 article in a conservative US newspaper entitled “Adam Smith’s advice to President Biden” suggested that the US President should re-read Adam Smith, and then concluded that “if Smith were alive today, he would likely encourage Biden to shrink rather than grow the government’s role in people’s lives.” (4).
Let us consider for a moment the arguments of the author, Mark Jamison. The first refers to Smith’s emphasis on the individual initiative of economic agents, their prudent management of resources and the concern that merchants should show for consumers. Jamison argues that the economic policy of the new American president does not respect Adam Smith’s recommendations:
“The president appears to fail to understand that economic resources are created by a vibrant free economy — not a heavily taxed and regulated one — and that regulation more often favors the politically powerful than the people who are struggling to improve their lives.”
His second argument draws on chapter 2 of Book IV of The Wealth of Nations, in which Smith cites the invisible hand (the only occurrence of this concept in his economic work). Smith argues that every individual is in the best position to make the most beneficial use of the resources at their disposal. When they make decisions, they have their own good in mind, not the good of society, but Smith argues that society also benefits from their decisions. Further on, he argues that under no circumstances should a “statesman,” a “council” or a “senate” seek to “to direct private people in what manner they ought to employ their capitals.” This would be useless and dangerous. Jameson translates this warning as follows:
“Markets should never be under the control of people who think they have enough wisdom and capability to control them for the public good.”
3. Adam Smith with Joe Biden
Jamison’s discussion tends to pit Adam Smith against Joe Biden on the role of the state and fiscal policy. But the opposite perspective is also possible. Joe Biden’s fiscal policy may be consistent with Adam Smith’s perspective on the subject. The excerpt from Joe Biden’s speech that we quoted in the introduction – “It’s time for corporate America and the wealthiest 1% of Americans to pay their fair share. Just pay their fair share.” – evokes that fundamental observation of Adam Smith about fairness in the distribution of taxes:
“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities that is, in proportion to the revenue which they respectively enjoy under the protection of the state” (5).
This statement is one of the four general maxims that Smith believes should apply to any state’s fiscal policy. He comments on it succinctly by comparing the rule of proportionality contained in it to the rule of apportionment of expenses that would apply to “the joint tenants of a great estate” (the “expense of management” being the responsibility of a steward). They are in the same position as those liable to pay the tax – the “individuals of a great nation,” in Smith’s words.
This way of distributing tax refers to the “fair share” that Joe Biden spoke of. The fairness in question also includes a reciprocal relationship: when Smith mentions the possibility of enjoying income “under the protection of the state,” he reminds us that this protection has a cost that only the participants in the nation can and must pay. This simple observation corresponds to the perspective of the American president.
Another statement of Smith’s, this time from his fourth maxim, which is often categorised under the adage that “too much tax kills tax,” is also quoted:
“[The levying of a tax] may obstruct the industry of the people, and discourage them from applying to certain branches of business which might give maintenance and employment to great multitudes” (6).
Again, Joe Biden referred to Adam Smith:
“I will not add to the tax burden of the middle class of this country. They’re already paying enough. What I’ve proposed is fair. It’s fiscally responsible.”
This is a reference to the necessary balance between justice and liberty. In Adam Smith’s view, the role of the state is both to promote natural liberty within the market and to put in place rules of fairness to regulate it (7). It is up to the state to find the right balance between the two values, on the understanding that, to conclude with Adam Smith: “If a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation which could ever have prospered” (8).
(1) “Remarks as Prepared for Delivery by President Biden — Address to a Joint Session of Congress,” 28 April 2021.
(2) O. Reboul, La rhétorique, Paris, PUF, Que sais-je ?, 1984.
(3) “CumEx scandal: What would Adam Smith think?,” 7 November 2018.
(4) Mark Jemison, “Adam Smith’s advice to President Biden,” The Lowell Sun, 21 March 2021.
(5) A. Smith, An inquiry into the nature and causes of the wealth of nations, 1776, ed. R. H. Campbell and A. S. Skinner, Oxford University Press, 1976.
(6) A. Smith, op. cit.
(7) I quote from my chapter on Adam Smith in Economic theory and globalization, T. Hoerber & A. Anquetil (ed.), Palgrave Macmillan, 2019.
(8) A. Smith, op. cit.