SST3771-ABED: 3.2.3 The Changing Role of Government

Classical Liberalism and Limited Government

Classical liberal thinkers believed that the government's role should be restricted to security, stability and maintaining order. The government's only involvement in the economy was paying for a police force, courts and jails, and supporting a military to protect the nation from its enemies.

Evolution to Modern Liberal Economics

In almost every nation in the world, governments today play much greater roles in the lives of its citizens. Not only do they regulate industry to enforce safety and labour standards as well as protect the environment, they also provide essential services that most people take for granted.

The degree of involvement depends on how much support exists for collectivism. In some countries the government provides health care and education for everyone, builds and maintains the roads that everyone drives on, establishes and maintains water supplies and essential utilities such as electricity and natural gas, creates communication networks that connect people across the nation and around the world, and provides a minimum income for those who are unable to work. This ensures they are still able to keep other people employed by purchasing necessities such as food and shelter.

To what extent should the government ensure services for its citizens?
How did liberalism evolve from the idea that government should only protect rights to the larger role of guaranteeing greater equal treatment it has today?

Take a look at the American historical cartoon.

In it, the Statue of Liberty, symbolizing peace, stands with a heavy weight entitled "income tax" around her neck.

An old ship and a closed workshop represent the fact that a long economic depression was just ending while the vultures overhead indicate death is near.

Liberal Context of the Image

The first income tax in the United States was established in 1861 to help pay the costs of the U.S. Civil War. It amounted to 3% of a person's annual income for anyone who earned more than $800 per year. While that doesn't seem like much to us today, back in the 1800s the average worker made less than that amount and so he did not have to pay any taxes.
The tax was in effect for less than ten years, and then it was abolished. When businesses and politicians proposed replacing their business taxes with income tax, many Americans were outraged. The proposed income tax bill was defeated, but the next income tax bill passed.

Look at the statue's name and the cartoon's caption, combined with the other elements of the image.

What do you think the cartoonist thinks about income tax during peace time?Does the ideological perspective reflect classical liberalism or modern liberalism? How do you know?
In other words, what links can be made between the source and liberalism can be made?

See exemplar here.

In this world nothing can be said to be certain, except death and taxes.

Benjamin Franklin

The Purpose of Income Tax

Today, we take the idea of income taxes and consumption taxes for granted, but it has not always been the case. For many years, countries with classical liberal economies obtained their incomes from tariffs and other business related fees. However, when they needed money, they began to consider a new form of revenue-income tax.

The first income tax in Britain was introduced in 1798 to pay for the costs of the Napoleonic Wars. In Canada, income tax was introduced in 1917 in order to finance Canada's expenses in World War I. It amounted to 4% on all income of single men over $2,000. Canadians with annual incomes of more than $6,000 paid an income tax of 2 to 25 per cent.

As the decades passed, income tax became a necessary way for governments to fund services. During the 20th Century, as government played a greater role in the lives of its citizens, so did the the type and complexity of taxation. This will be explored in greater detail in Unit 6.