24 Nov A WEALTH TAX IN JEWISH TRADITION

There is talk
in the U.S.
about taxing
the wealth
of the superrich. Without
engaging in
d i s c u s s i o n
about proper
policy today, I would like to explore
the concept of a wealth tax in the
Jewish tradition. Should CEO’s of
tech companies pay taxes on their
accumulated wealth?
I. Jewish Wealth Tax
Historically, Jewish communities in
various times and places have had
to tax their members. When Jewish
communities are able to self-govern,
they need to fund basic operations and
also charitable works. Additionally,
some governments have assigned tax
amounts to a Jewish community and
delegated the task of allocation and
collection to community leadership.
This leaves the decision of how
to tax to Jewish leadership. The
Talmud (Bava Basra 7b) discusses
how to allocate the taxes fairly. The
conclusion, taken in conjunction
with Bava Kamma (116b), is that
life-saving measures are allocated
among citizens individually based on
risk (roughly, a head tax); everything
else is allocated based on assets (a
wealth tax). Rabbeinu Asher (14th
cen., Germany-Spain; Rosh, Bava
Basra 1:22) explicitly applies this
to Medieval taxation in the Jewish
community. Nearly all taxes must be
allocated according to wealth; there
is no Jewish income tax.
Because of historical circumstances,
a wealth tax had to be administered
in many different times and places.
Local customs and best practices
emerged. I would like to explore
here the Jewish tax practices in 15th
century Germany and Austria. In
general, the way taxation worked
in this period is that there was an
annual tax on the Jewish community
based on population size, business
volume and wealth. Additionally, a
local lord could calculate a special
tax depending on how much he
needed and how many people or
assets the Jews had. There would
be negotiation between the Jewish
communal leaders and the lord to
arrive at a final amount. Then the
Jewish leaders would assess a tax on
the community members to raise the
negotiated sum. If they did not reach
the necessary amount, they would
increase the tax until they could pay
the lord. (On all this, see R. Bernard
Rosensweig, Ashkenazic Jewry in
Transition, ch. 6.)
II. What is Taxable?
Rav Yisrael Isserlein (15th cen.,
Austria) was one of the leading rabbis
in greater Germany. Rav Isserlein
was asked by a community how to
allocate taxes and responded at
great length, detailing common
taxation practices of his time
(Terumas Ha-Deshen 1:342). He
begins by quoting Rav Menachem
of Merseburg who says that most
matters of taxation depend on
custom, even against the Talmud.
Rav Isserlein spends a good deal
of time defining who falls under
a tax. There is no limit to the
creativity of someone trying to
avoid taxation. Therefore, the
community has to be careful to
close loopholes and not to allow, for
example, someone to leave a city
just before a major tax assessment
without paying his fair share.
The key to assessing wealth is
defining which assets are taxable.
The general rule is that tax is only
assessed on income generating assets.
This is apparent from a responsum of
Rav Hai Gaon (11th cen., Babylonia)
that Rav Isserlein quotes. For
example, a house where you live is
not taxed but a house that you rent to
others is taxed because you receive
income on the rental property. The
details of this definition and the
exceptions vary based on custom. In
general, community leadership acted
flexibly and quickly to tax or exempt
certain assets in order to prevent tax
avoidance and to remove perverse
incentives to abandon specific
occupations in favor of others.
III. Cash and Interest
There is a difference of customs
regarding accumulated money
(not assets but specifically cash).
If you do not lend or invest it but
rather give it to a trusted third
party to hold, the money does not
generate income. According to Rav
Hai Gaon and another unnamed
scholar (gadol
echad), you
should not have
to pay taxes on
the accumulated
cash. However,
Rav Chaim Or
Zaru’a (13th
cen., Germany)
rules that you
must pay taxes
on accumulated
money and Rav
Isserlein follows
this view because
the government
assesses tax on
accumulated cash
( p r e s u m a b l y,
because it can
easily be lent for
interest).
Jews were forced into the
moneylending business because
they could charge interest to
gentiles. Do you have to pay
taxes on uncollected accumulated
interest on loans? The interest is
unrealized profit. Rav Isserlein
says that the custom is not to pay
tax on accumulated interest for
three reasons: 1) the interest was
never in your possession, 2) there
is uncertainty whether the interest
will be paid at all — borrowers
often default on loans, and 3) you
do not earn income on the interest.
None of these reasons is sufficient
on its own but together they exempt
uncollected interest on a loan. Rav
Ya’akov Weil (15th cen., Germany;
Responsa Mahari Weil, no. 133) adds
that interest becomes taxable when
the due date arrives, i.e. when it is
collectible immediately.
Rav Isserlein covers many more
details about taxes. He is not the only
authority to do so but, in my opinion,
he is the most comprehensive and
clear about it. Significantly, Rav
Moshe Isserles (16th cen., Poland)
rules on these issues — generally
following Rav Isserlein — in his
glosses to Shulchan Aruch (Choshen
Mishpat 163:3).
IV. Modern Applications
If we would follow these customs
for a Jewish wealth tax, we would
tax people based on their invested
assets and income-generating bank
accounts, as well as any businesses
and other income-generating assets
they own (plus jewelry). We would
tax them on accumulated cash but not
on unrealized gains on investments
(like uncollected interest on loans).
For example, tech CEO’s with
billions of dollars in stocks would
not pay taxes
on most of the
a c c u m u l a t e d
stock value
because it
r e m a i n s
unrealized and
without a due
date.
The question
remains why
Jewish tradition
does not have an
income tax. If
we tax incomeg e n e r a t i n g
assets as
a general
rule, albeit
with many
exceptions, why not just simplify
things with an income tax? I suspect
the answer is that calculating income
requires detailed record-keeping. In
pre-modern times, it was easier to
value someone’s assets on a given
day than to calculate what he earned
over the previous year. If so, perhaps
a Jewish community today that
needed to assess taxes would adopt
an income tax instead of a wealth tax
because this type of record-keeping
is now standard.