Gutting public finances central to rule of law assault

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Contextualizing the Trump IRS deal and lawbreaker payout

Donald Trump’s settlement with the IRS and proposed fund to pay insurrectionists and others supposedly victimized by the legal system (previously known as enforcement of the law), raises the question of the relationship between rule of law and tax systems. Although we tend to think about tax collection as a technical matter of state administration, historically it has been the forge through which many rule of law developments have occurred and been sustained.

As I’ve discussed in prior pieces, state fiscal capacity is crucial to creating a functional bureaucracy necessary to uphold rule of law standards. The judiciary, public sector administration, and police all require resources that taxation provides. Very poor countries typically lack efficient and effective fiscal capacity and resources, thus impeding measures to build rule of law. Effective law and governance facilitate economic growth, thereby increasing the tax base, which drives a virtuous cycle of improvements in government capacity that reinforce rule of law and governance standards.

Aside from helping to preserve such standards, rule of law concerns are central to driving political settlements and the resulting acceptance of state legitimacy that build functional tax systems in the first instance.

Taxation and governance develop together

A canonical article by Douglas North and Barry Weingast illustrates this phenomenon. The story begins with the Glorious Revolution when William of Orange and Mary Stuart were crowned in 1689. In the North and Weingast account, among the changes was a “fiscal revolution”, which gave parliament the exclusive power to impose new taxes. Additional reforms gave parliament power to audit, monitor, and veto expenditures.

These fiscal agreements were part of a broader series of political reforms, which through “credible threats” would ensure that the Crown adhered to its commitments. In addition to overall parliamentary supremacy, the reforms established judicial independence and curtailed the Crown’s ability to violate political liberties and rights. North and Weingast argued that “in exchange for the greater say in government, parliamentary interests agreed to put the government on a sound financial footing, that is, they agreed to provide sufficient tax revenue.”

If political agreements on taxation can help generate and sustain rule of law, compliance with tax policy has been shown to be both reflective and constitutive of broader cultures of legality. A 2009 book by Marcelo Bregman examines the dramatically different levels of tax compliance in Argentina (low) and Chile (high). He argues that tax evasion is a product of culture rooted in social norms and institutional arrangements.

Bregman finds that tax dodging is bad not only because it compromises the ability of the state to foster economic development but because it undermines the state’s legitimacy.

“It is harder for states that fail to elicit high tax compliance to gain wide approval, because the quality of public goods in such states diminishes. Conversely, higher compliance is self-sustaining because it enables sound fiscal policies that promote improved consent.”

Reading his account, it’s difficult not to pin much blame for Argentina’s dismal economic and governance record to its poor tax compliance.

From tax reform to state self-harm

The deep connection of taxation to the rule of law is why Trump’s effort to gut government revenue capabilities is so central to his agenda. No doubt self-interest and opportunism are major motivations. But it goes further than this.

Indeed, the moves are in a different class to traditional conservatives’ struggles to reduce tax rates. The strategy is part of the broader ungoverning agenda and desire to undermine social solidarity.

The initial results of the administration’s nonfeasance are already in. Reuters reports that the “Trump administration dramatically reduced efforts to pursue tax cheats in 2025….shedding tens of thousands of employees at the Internal Revenue Service, including those charged with ‌enforcement.” Based on data from a Freedom of Information Act request, the news agency found a five per cent decline in government revenues due to reduced enforcement actions in 2025. Evidently, another 10,000 enforcement staff are slated to be axed in the coming year.

Sabotaging taxation is central to ungoverning, but it is also instrumental to eroding the very foundations of civic life, social order, and the very ability of the state to uphold the law.

While citizens everywhere dislike paying taxes, it’s like going to the dentist. Although few relish the experience, most people, most of the time, mostly pay their taxes. With taxes, as in most other aspects of our social lives, voluntary compliance is essential.

By undercutting the basic legitimacy of the tax system, Trumpism undercuts the basis of a shared civic life and a reasonably harmonious polity.

Transparent, in a different sense

Given that the rule of law functions in part based on a shared ethos, fomenting distrust in the system of taxation is tantamount to destroying the basis for citizens’ connection to the state. While we expect lots from our governments, the predominant thing governments seek in return is our taxes.

Gut the tax system, and you gut the state. Gut the state, and you’ve killed the rule of law.

While the Trump Administration is generally not known for transparency, its motives here are open for all to see.