It sits well if you start with the observation that “the whole consumption of the inferior ranks of people … is in every country much greater … than that of the middling … and above … rank.” Therefore, taxing anything except luxuries “would fall altogether upon the superior ranks of people,” which would diminish their parsimony, and thus lower growth. But there is no way that a consumption tax on nonessentials will suffice to fund a state of the size envisaged by Smith. How, then, can goverment be funded? The answer is government debt, and Smith doesn’t like that answer.

Mark Blyth, Austerity, loc. 301