In a highly ambitious and extremely well-written article, Prof. McCaffery takes us on a fascinating journey through the concept of property in law and legal thought from Ancient Rome to the present day. He argues that the modern conception of property rights as embodying complete dominion over a thing, including the right to destroy it, is a nineteenth century aberration that stands in stark contradiction to the seventeenth and eighteenth century liberal tradition. He focuses particular attention on John Locke, the titular godfather of private property. Many have noted that Lockean property rights are considerably more limited than is often claimed, as Locke expressly conditioned an individual’s exclusive rights in what had originally been the common property of all humankind on one leaving for others “enough, and as good” as one takes for oneself. McCaffery takes a more unusual approach. He points out that according to Locke, once one has acquired exclusive rights in a thing, one is obligated to preserve that thing for the good of the community as a whole. Allowing one’s “own” fruit to rot is impermissible and punishable.
McCaffery describes this type of property right in terms of the civil law institution of usufruct, a legal institution similar to that of fee simple absolute in common law, but lacking jus abutendi, the right to destroy. One who holds property in usufruct is entitled to use and benefit from the property but is saddled with an obligation to preserve it.
Locke contended that the adoption of gold and silver as a means of exchange and – more importantly – as a means of amassing wealth eliminated the need for community policing of private property to ensure that it was preserved for the long-term benefit of the community. With the introduction of precious metal as specie, owners’ interests became fully aligned with the common good. According to Locke, a fully monetized economy keeps things is usufruct by fact, not law.
However, McCaffery contends that while gold and silver cannot be wasted, money can. The wealthy can dissipate their wealth and, by so doing, leave the community worse off. Therefore, he proposes putting money back into usufruct, permitting the holders of wealth to use it but not destroy it. His goes on to argue is that the appropriate means of doing so to abandon the income tax and replace it with a highly progressive consumption tax. Wage earners would be permitted to invest their income in Unlimited Savings Accounts, similar to a Roth IRA. Tax would be imposed when the funds were withdrawn to finance consumption. He suggests that consumption up to $1 million a year would be taxed at the rate of 30% (possibly offset by a Universal Basic Income), consumption between $1 million and $50 million would be taxed at the rate of 50%, and consumption above $50 million would be taxed at the rate of 90%. Although he does not state so explicitly, it is clear from his examples that money withdrawn from a USA to pay the consumption tax would also be considered consumption and subject to tax. Therefore, grossing up from actual consumption to tax, the proposed tax rates would be 43%, 100%, and 900%.
As McCaffery explains it, the idea behind this tax structure is that ordinary persons will simply pay a deferred wage tax of 30%. The wealthy (“aristocrats” and “plutocrats”) would be viewed as holding and managing their wealth for the benefit of society as a whole (“Wealth belongs to the living in usufruct, and to all of us in remainder.”). They may consume a reasonable amount at the ordinary 30% rate, but if they wish to consume more than that, then society has the right to take actual possession of the wealth by means of the tax. Thus in order to consume an extra $1 million beyond the first $50 million, plutocrats would need to transfer $9 million to public coffers. Effectively, they have the option of continuing to manage $10 million of public funds or of consuming $1 million. Such a tax structure would discourage consumption at high levels and either preserve wealth for future generations or direct it to charitable use. Where wealth is passed on to future generations, the members of those generations would face a similar set of options.
McCaffery’s analysis and proposals are thought provoking. They challenge the way that we view property and the way we view tax. However, there is one aspect upon which I would suggest that the author could have further elaborated. It has often been argued that concentration of wealth, and particularly dynastic wealth, is a threat to democracy, as wealth confers economic and political power beyond the ability to consume. For example, Rawls – who also favored (albeit proportional) consumption taxation over income taxation, on the Hobbesian grounds that a consumption base taxes those who take out of the common store of goods and not those who contribute to it – insisted on limiting the right of bequest and imposing a highly progressive inheritance tax specifically in order to prevent the accumulation of dynastic wealth. For Rawls, equal liberty and equal opportunity are lexically prior to promosting material well-being, so that justice requires restricting the transfer of wealth to the next generation even if wealth is thereby destroyed and the worst-off are not as well off materially as they could have been. Of course, this is not to say that Rawls is necessarily correct in his analysis. Nevertheless, it is an issue that I think should be addressed.
I will conclude by noting that in addition to its substantive merits, the article is a pleasure to read. It is highly recommended for anyone interested in the foundational issues of property and taxation.