There is talk in the U.S. about taxing the wealth of the super-rich. Without engaging in discussion about proper policy today, I would like to explore the concept of a wealth tax in the Jewish tradition. Should CEOs 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 Batra 7b) discusses how to allocate the taxes fairly. The conclusion, taken in conjunction with Bava Kama (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 Batra 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 (Terumat 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 (presumably 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 CEOs with billions of dollars in stocks would not pay taxes on most of the accumulated stock value because it remains unrealized and without a due date.
The question remains why Jewish tradition does not have an income tax. If we tax income-generating 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.
Rabbi Gil Student is editor of www.TorahMusings.com.