Joseph A. Schumpeter, “Wen trifft die Umsatzsteuer?” (1928)

This is a short single-author public-finance article. Its scope is narrow but ambitious: the immediate Weimar problem of covering the Reich budget deficit becomes the occasion for a theory of who ultimately bears a general turnover tax. The essay moves in two parts. Section I makes the fiscal and administrative case for a moderate increase of the Umsatzsteuer; Section II asks the incidence question and argues that the tax’s breadth makes it unlike ordinary excises. Schumpeter’s main thesis is that the Umsatzsteuer is appropriate for Germany in 1928 because it yields revenue cheaply, does not sharply discriminate against saving, and is only partly shifted to consumers.

Schumpeter begins from fiscal arithmetic: the tax had proved itself in wartime and postwar budget emergencies, and its sharp reduction after 1923 ran parallel with the deterioration of Reich finances. His first argument is practical rather than doctrinaire. Other taxes are already politically and economically strained; a small increase in the turnover tax would be administratively easy and unlikely to produce serious disturbance.

Denn technisch ist keine Maßregel leichter als eine mäßige Erhöhung der Umsatzsteuer: Wie dieser schon an sich der große Vorzug verhältnismäßig geringer Kosten und Schikanen eignet, so auch der weitere Vorzug, daß ihre Erhöhung keine neuen Schwierigkeiten mit sich bringt und keine neuen Probleme aufwirft, wie das bei vielen andern Steuern der Fall ist.

English translation: For technically no measure is easier than a moderate increase of the turnover tax: just as this tax itself already possesses the great advantage of comparatively low costs and vexations, so it also has the further advantage that its increase brings no new difficulties with it and raises no new problems, as is the case with many other taxes.

This defense is comparative. Schumpeter concedes real defects: self-consumption is hard to capture, production chains differ in their number of taxable transactions, foreign trade raises complications, and exemptions become necessary. But he refuses to treat these imperfections as decisive, since every tax enters the capitalist process as a distortion. His criterion is not ideal justice but suitability to Germany’s fiscal constraints, capital needs, and policy environment.

Aber keine Steuer ist ein Ideal.

English translation: But no tax is an ideal.

The second section supplies the conceptual center. Schumpeter rejects the sterile formal dispute over whether the tax is “direct” or “indirect.” Legal incidence does not determine economic incidence: nearly all taxes can be shifted in some degree, and almost none is shifted completely. Shifting occurs through relative restriction of supply and through movements of capital and labor toward less burdened uses. The decisive feature of the Umsatzsteuer is its generality: because it applies broadly, escape into untaxed branches is largely blocked.

Wenn wir einen paradox klingenden Satz riskieren dürfen – die Allgemeinheit dieser »Verbrauchssteuer« beraubt sie ihres Charakters als Verbrauchssteuer.

English translation: If we may venture a paradoxical-sounding proposition — the very generality of this »consumption tax« robs it of its character as a consumption tax.

From this follows Schumpeter’s answer to the title question. Consumers bear some burden, but not in the simple manner assumed by both critics and defenders. Full shifting would require a rise in the general price level, which depends on money supply or velocity; Reichsbank policy limits that path. Moreover, a tax on value turnover is not the same as a tax per physical unit, so it affects increasing- and decreasing-cost industries differently. The result is a diffuse, structurally mediated incidence.

Die Steuer wird vielmehr zu einem wesentlichen Teil nicht abgewälzt und unterscheidet sich in dieser Beziehung von den eigentlichen Verbrauchssteuern viel mehr als von der Einkommensteuer.

English translation: On the contrary, the tax is to an essential extent not shifted, and in this respect differs from genuine consumption taxes much more than from the income tax.

The article’s final move is anti-formalist and systemic. The Umsatzsteuer is tolerable not because it realizes a rational distributive design, but because its burden spreads through the whole economic organism in a flexible way. That is also why Schumpeter thinks political agitation against it exceeds actual felt injury. Its relevance lies in treating tax incidence as a dynamic process shaped by supply, money, industrial structure, and breadth of base—an argument still pertinent to debates over broad consumption taxation.

Sie ist wahrhaft eine Steuer auf die ganze Volkswirtschaft, deren Lebensprozeß ihre letzten Wirkungen automatisch gestaltet und eben dadurch erträglich macht.

English translation: It is truly a tax on the whole national economy, whose life process automatically shapes its ultimate effects and precisely thereby makes them bearable.