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From Taxation to Justice

Can taxes be just? If yes, which tax system would it be? If no, what are the alternatives? This award-winning essay provides a far-reaching, critical analysis on the controversial issue of taxation and justice.

Taxation has become one of the key policy challenges in most advanced countries. Demographic trends reinforce the prospective threat of increased pressure on taxpayers to fund existing welfare programs, while institutional competition between European countries and from other regions in the world plays an increasingly decisive role in keeping governments in check. Central and Eastern European countries adopting proportional taxation systems have attracted additional investment from elsewhere and generated incentive structures conducive to entrepreneurial risk-taking. Other regions such as Asia and the United States enjoy marginally superior economic growth than many parts of Europe thanks to a less penalizing environment for production. Partly as a result, government debt — which may be viewed as deferred taxes — has reached new highs in many countries.

Mature democracies thus find themselves in a seemingly inextricable situation. Although known and recognized as unsustainable, high levels of government spending, not least for pension and other welfare programs, enjoy widespread popularity. Notions such as “social justice”, “solidarity”, and “socially acceptable reforms” give the moral high-ground to those politicians and public policy officials who advocate redistributive schemes maximizing such benefits. Opponents to such views generally do not oppose heavy tax burdens on grounds of justice, but defensively criticize their levels for their alleged detrimental effects on economic growth and job creation. On their own, however, such arguments seem ineffective: Voting majorities, as repeatedly evidenced, do not necessarily seek to maximize wealth, but often prefer maintaining high levels of redistribution in favor of people like themselves by “taking the money where it is” through government as an intermediary, regardless of constitutionally enshrined property rights. Legal and constitutional constraints to taxation prove particularly ineffective if the assumed motive behind governmental action is “do-goodism”, and taxes are least resisted when policies are seen by most people as benevolent. Progressive taxation plays a central role in sustaining such perceptions. Most governments explicitly share the well-established notion that each taxpayer should pay taxes “according to ability” — a condition that graduated tax rates seem to fulfill.

This paper starts by addressing taxation and justice with an examination of government spending, which for the most part rationalizes taxation. It then moves on to a theoretical and an empirical discussion of the nature of both taxation and justice, looking into the case for individual property rights and equality before the law. It further assesses progressive, proportional, regressive, and equal taxation in the light of the preceding discussion, and explores other possible means of financing government that are consistent with justice or, in a necessarily imperfect real world, at least nearing consistency under some conditions.

Read the essay: From Taxation to Justice (21 pages, PDF)

Lire l'étude en français: De l'imposition à la justice (23 pages, PDF)