A great mind: Ibn Khaldun

One article on this great personality will be considered as a disservice and I shall try
my best, within my capacity, to read and research more and write about the great
works of the historian Ibn Khaldun who was born in 1332 in Tunis. He was educated in
the religious studies of Qur'an, Hadith, jurisprudence, and law, as well as sciences such
as physics, mathematics, philosophy and logic. His strong base in a wide variety of
disciplines helped him to analyze the worldly affairs, specially governments, in greater
depth.
Ronald Reagan, 40th president of the United States, commented on Ibn Khaldun by
saying:
May I offer you the advice of the 14th century Arab historian Ibn Khaldun, who said:
At the beginning of the empire, the tax rates were low and the revenues were high. At
the end of the empire, the tax rates were high and the revenues were low.
And, no, I did not personally know Ibn Khaldun, although we may have had some
friends in common![1]
His economic ideas which he analyzed during the 14th century became part of the
governments fiscal policies around the globe. Very correctly, a co-relation has been
established between the tenor of the governments and the tax rates. As per the
guidelines of Islam, the Zakat (philanthropy/charity tax) is 2.5% of accumulated wealth.
Other taxes like land tax, inheritance tax and tax on spending have not been popular in
the Muslim World. It is quite comprehensible from the above that if the tax rates are
low, the public is encouraged to pay tax and the governments end up collecting greater
tax revenues. Furthermore, Ibn Khaldun stated:
The reason for this is that when the dynasty follows the ways (sunan) of the religion, it
imposes only such taxes as are stipulated by the religious law, such as charity taxes, the
land tax, and the poll tax. They mean small assessments, because, as everyone knows,
the charity tax on property is low.[2]
And then he added:
At the beginning of the dynasty, the revenues are distributed among the tribe and the
people who share in the rulers group feeling, in accordance with their usefulness and
group feeling and because they are needed to establish the dynasty, as we have stated
before. Under these circumstances, their leader refrains in their favor from (claiming)
the revenues which they would like to have.
Ibn Khaldun studied governments behavior in great depth and it seems the
same behavioral trends exist till date. Governments prefer using public finances for
the welfare of the tribes and societies and to establish a strong liking or aptitude
towards their rule. In contrast, when governments sway from the path and corruption
becomes the culture, the tax revenues are siphoned off to non-productive areas
bearing nil or negative results.

Accountability, Self-checks and balances

Umar Bin Al Khattab, the second caliph of Islam, was known to have two lamps that he
would use to light his house. One lamp was funded by the tax payers money and he
would use that only during his work, in his official capacity, as the leader of the vast
empire. The second lamp was personally funded by the caliph and he would use that
when engaged in personal affairs, and not of the government. It was Umar bin Al
Khattabs accountability which contributed to the strong foundations of a successfully
run and contolled empire.
Ibn Khaldun opposed high levels of taxation
The result *of high taxation+ is that the interest of the subjects in cultural enterprises
disappears, since when they compare expenditures and taxes with their income and
gain and see the little profit they make, they lose all hope. Therefore, many of them
refrain from all cultural activity. The result is that the total tax revenue goes down, as
(the number of) the individual assessments go down.
Governments tend to increase taxes excessively to finance public debt and extravagant
ventures within the boundary and overseas. This negatively impacts the willingness of
the public to contribute or participate in the economics of the country. Excessive taxes
have discouraged investments and consumerism and this has had further effects on
poverty, employment and crime rates. The words of Ibn Khaldun can be very rightly
analyzed in the form of the Laffer curve as below.

The Laffer Curve, named after the American economist Arthur Laffer, credited his
work to the great Ibn Khaldun
Ibn Khalduns ideas have actually been known to us in the form of the Laffer curve
(advocates supply-side economics). The Laffer Curve helps the economists to ascertain
the optimum tax rates which maximizes the tax revenue, without the need of
increasing the tax rates in proportion. The basis of setting an optimum tax rate is to
encourage businesses to re-invest their profits in expanding their businesses which
creates opportunities. As purchasing power increases, businesses earn more, and more
jobs are created a greater number of individuals and corporations tend to fall in the tax
bracket.
I prefer to refer to the graph above as Khaldun's curve and his immense contribution
to the economics of the world is extraordinarily remarkable.