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The Greeks achieved the first major civilized society without despotism, or what we call totalitarianism. The great civilizations of Egypt, Babylon, Persia — even the Greek tyrants — were all developed with an absence of any freedom or liberty. Why, asked the astute Greeks, was civilization incompatible with liberty? The answer seemed obvious. Tyranny was the consequence of the wrong kind of taxes; and liberty was the product of the right kind of taxes. What then are the wrong and right kinds of taxes? Or to put it another way, what kinds of taxes are compatible with a free society?

First we have to recognize that taxes are the fuel that makes totalitarianism possible. Big, over-blown, over-regulating, over-policing governments require big taxes. Without large revenues, tyranny cannot live very long. Conversely, as long as governments have big revenues, liberty hasn't a prayer. Libertarians, even so-called conservatives, who hope to reform the United States should realize that their archenemy is the revenue system, and they won't get to first base as long as a huge tax and spending system is in operation. They could almost win their battle by attacking the revenue system and bringing it down to a moderate size. Simplistic, but true.

According to the Greeks and Romans, the culprit was  direct taxation; i.e., taxes assessed directly upon the individual — head taxes, wealth and property taxes, and production or income taxes. Adopt these kinds of taxes and liberty will suffer; eventually it will be lost. The great Roman lawyer Cicero put the matter in shocking terms:

"If any government should find itself under the necessity of levying a tax on property, the utmost care has to be devoted to making it clear to the entire population that this simply has to be done because no alternative exists short of complete national collapse."

The Founders of the United States believed the same thing. Madison said a direct tax will only be instituted during an "extraordinary emergency." James Wilson, whom many believe was the real architect of the Constitution, said the same, using the words, "in all cases of an emergency." Another Framer said, "direct taxes should not be used but in cases of absolute necessity." And another wrote, "Nothing but some unforeseen disaster will ever drive the [federal government] to such ineligible expedients." No one ever questioned the wisdom of these remarks.

Unfortunately, even indirect taxes have produced a terrible tyranny in the post-medieval period. The excise tax was invented by the Spanish in the 15th century and it brought about the collapse of the largest empire the world has ever known. The leading Spanish historian of our age observed:

"Spanish industry was strangled by the most burdensome and complicated system of taxation that human folly can devise ... The taxpayer overburdened with imposts, was entangled with a network of regulations to prevent evasion ... He was crippled at every stage by the deadly influence of the anomalous and incongruous exactions."

The Spanish excise was an indirect tax of 10% that was paid every time goods, and even real estate, were transferred. It later was adopted by the great Netherlands empire, and it brought down that superpower as well. In 1691, a British visitor to Holland said this:

"Should we in England be obliged to pay the taxes that are here imposed, there would be rebellion upon rebellion. And yet after all that is here paid, no man may bake his own bread, nor grind his own corn, nor brew his beer, nor dare any man keep in his house a handmill, although it be but to grind mustard or coffee."

It was the good sense of the British to have steered clear of heavy excises, and this kept the price of British goods low on all world markets, permitting the British to replace both the Spanish and Dutch as the leaders in world trade and to become the superpower for the next two centuries. By the beginning of the 20th century, America had become the new superpower, and it did so with a tax system which was about as low as possible for a civilized society. "America was a land of liberty," said Thomas Paine, "because it was a land of low taxes." George Washington had Paine's pamphlets distributed to his troops at Winter Quarters in Valley Forge during the dark days of the Revolution. Paine said, "Government at best is a necessary evil, at worst, an intolerable one." That is as true today as it was then — and people living in the United States ought to know it!

There is no particular form of taxation that will guarantee liberty. It is true that direct taxes have a history of destroying liberty, but, as noted, so have indirect taxes. The common denominator of a tax that is compatible with liberty, is moderation. This ethical principle was given to us by the Greeks, especially by Aristotle in his Ethics. We know it as the doctrine of the golden mean. It was also the foundation of the ethics of Adam Smith. Virtue was the middle ground between too much or too little: Courage was the middle ground between being rash or being a coward. So it is with a good tax system in its rates of tax, its means of enforcement, and its intrusions into the lives of the people. And in a democratic society, a law to be just must mete out equal treatment to all, so we have to add uniformity and equality to a tax system, i.e., "common to all" as was expressed at the Constitutional Convention in 1787. D

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Charles Adams of Williamsville, N.Y., is an international tax lawyer and an Adjunct Scholar at the Cato Institute. He holds a degree in history and philosophy from Whittier College and a doctor of law degree from UCLA, and is the author of For Good and Evil: The Impact of Taxes on the Course of Civilization (Madison Books, 1993).