When I designed my course on Markets and Morals, at Yale in 2017, I wanted a reflection on the normative value of market outputs to figure prominently. This, of course, would require a range of philosophical accounts of taxation. To my surprise, aside from the seminal The Myth of Ownership (Reference Murphy and Nagel2002), by Liam Murphy and Thomas Nagel, little was written on the topic. Thus, my course contained only a single session on taxation in the middle of the syllabus.
This absence is salient. States depend on taxation to function. Goods and services undersupplied by the market are financed by it, as are social programmes to help those who cannot take care of themselves. Taxation can discourage unhealthy practices like smoking, or environmentally damaging practices like pollution. Tax policy design is a way for states to attract capital, and it can simultaneously undermine the fiscal autonomy of other states. More generally, ‘taxation is one of the most significant mechanisms for interaction between states and individual systems’ (1), as Martin O’Neill and Shepley Orr point out in their introduction to this valuable new book. While the students in my class engaged in a lively discussion that offered a critical analysis of some of The Myth of Ownership’s core assumptions, many of the questions we raised remained unsettled. This has changed. Taxation: Philosophical Perspectives quenched my thirst.
With this remarkable collection of 12 essays and a concise introduction, we now have a philosophical literature on the topic. Naturally, there are still some unanswered questions, but the progress is notable. The collection is divided in two parts. The seven essays in Part I deal with normative and conceptual questions. Some of the central themes of Part I are: the nature of taxation, the right to property, libertarianism, and the normative value of market outputs. There is also an underlying non-ideal theory methodology in key chapters of the book, which deserves a comment. The five essays in Part II focus on specific policy issues. Part II explores themes such as benefit tax, inheritance tax, land tax and tax competition. I will begin by reviewing the core themes of Part I.
1. The nature of taxation
While none of the chapters tackle it directly, the book does not shy away from the abstract question of the normative nature of taxation. The editors, O’Neill and Orr, begin their Introduction by pointing out that taxation is ‘irreducibly a normative matter … When we think about issues of social justice in practice, we cannot avoid thinking at the same time about tax’ (1). On this account, the philosophical nature of taxation is connected with the practical requirements of principles of justice. One of the chief contributions of the book as a whole is that it unpacks this connection. Prominent texts in political philosophy have attempted to establish this relation. The theoretical background with which many of the essays in O’Neill and Orr’s book actively engage is based partly on Robert Nozick’s libertarianism, and partly on Murphy and Nagel’s The Myth of Ownership. For Nozick, taxation interferes with the individual’s pre-political property rights, and thus is only legitimate when it aims to fund a minimal state designed to enforce property rights (Nozick Reference Nozick1974). On the other side, Murphy and Nagel, following a broad Rawlsian perspective (Rawls Reference Rawls1999), claim that people are not entitled to their pre-tax income, for pre-tax income has no status independent of the theory of social justice we wish to put forward in society.
Taxation: Philosophical Perspectives shows that we need to move past these reference positions to really grasp the relation between taxation and political theorizing. In particular, the book suggests that while Nozick’s position is not the most plausible view on libertarianism, Murphy and Nagel’s account lacks nuance. Moreover, while the nature of taxation will be partly determined by one’s position on the distributive justice spectrum, it should also be informed by specificities of taxation as a tool. Key insights on these specificities are revealed in Chapter 1, ‘What Political Philosophy Should Learn from Economics about Taxation’, by Alan Hamlin.
2. Methodology
This collection of essays on the philosophy of taxation is – thankfully – well-grounded in practice. It is important to understand why this book is significant from a methodological standpoint. It is particularly relevant for non-ideal theory. Hamlin rightly says that non-ideal theorists interested in topics such as taxation should carefully consider inputs from economics (18–20).
While just taxation is a normative matter, the book reveals that we gain normative insight about property rights and the value of market outputs from an examination of the practical object: ‘tax’. The practical examination of taxation uncovers much about the soundness of theories of justice. Indeed, in the first chapter of the book, Hamlin offers tools for understanding that there is more to taxation than simply putting into practice whatever is required by a theory of justice (31–34). He unpacks what he calls the black box technology of taxation by following three economic theories – optimal tax theory, the political economy of taxation and the constitutional approach – which should inform the work of philosophers, as they offer key insights for real-world tax policy design. Hamlin urges us to move beyond ideal political theory and abstract economic models.
In Chapter 6, ‘Tax Policy and Fair Inequality’, Alexander W. Cappelen and Bertil Tungodden offer another excellent example of how to integrate economic notions into a normative analysis. This essay explores how desirable values can be realized in practice, especially with regards to fair and unfair inequalities. This should be of interest to all non-ideal theorists. To exemplify how to implement a fair tax system, the authors offer a detailed case study of Norway (117–121). They complement Marc Fleurbaey’s reflection (in Chapter 2) on the value of ‘fairness’ approaches to taxation and its superiority to the standard welfarist approach and contribute to real-world evaluations of tax policy.
Regarding a non-ideal theory of taxation, one issue deserves a careful, separate examination: compliance with tax justice. Hopefully we will hear more on this issue, in light of the progress accomplished by this collection. How can we increase compliance with tax systems while avoiding the problems of tax competition (addressed by Peter Dietsch in Chapter 11) and tax avoidance (addressed by Gillian Brock and Rachel McMaster in Chapter 12)? As Dietsch points out, if tax competition prevents the adequate distribution of the tax burden across wealth, capital and labour, it will disproportionally rest on consumption and labour (a regressive effect), which are less mobile than wealth and capital (212).
3. The moral significance of market outcomes
The second chapter of the book, Marc Fleurbaey’s ‘Welfarism, Libertarianism and Fairness in the Economic Approach to Taxation’ explores optimal tax theory, introduced by Hamlin. Optimal taxation aims to design tax systems that maximize the social welfare function, taking into account real-world economic constraints (38). For Fleurbaey, choice and responsibility, as in the luck-egalitarian approaches to distributive justice, are relevant to determine the significance of market outcomes from a normative standpoint (54–57). This is central: according to this view, the evaluation of tax systems should be driven by a philosophical reading of market outcomes based on the philosophical notion of responsibility. Fleurbaey’s contribution is to show that, when looking at taxation, Rawls’s account should be complemented with luck-egalitarian considerations (giving normative weight to market outcomes and pre-tax income), while noting that this falls short of a libertarian position.
Chapter 3 is Geoffrey Brennan’s ‘Striving for the Middle Ground: Taxation, Justice and the Status of Private Rights’. This chapter explores the constitutional approach introduced in Chapter 1 by Hamlin, which was initiated by Brennan himself with James Buchanan in The Power to Tax (Brennan and Buchanan Reference Brennan and Buchanan1980). Brennan distinguishes between two levels of rules: a constitutional level, a Rawlsian basic structure, which is subject to principles of justice; and another, day-to-day level, which contains the more specific details of a tax system (68). He shows that, to a certain extent, individuals are entitled to their pre-tax income, and thus, that market outcomes carry more normative weight than in a Rawlsian system. But to what extent, exactly? Brennan suggests that a ‘democratic equilibrium’ could be reached (75). If practitioners follow up on the work of this book, we could observe concrete tax proposals based on these philosophical investigations.
4. The right to property
Property is a central concern of the book, and it features prominently in Chapters 3 and 4. On Brennan’s approach, a just tax system is determined by the structure of private rights (including property rights). In practice, a constitution of just taxation is formulated based on the interaction between tax-transfer rules, the democratic process and private property rights (79).
Laura Biron, in ‘Taxing or Taking? Property Rhetoric and the Justice of Taxation’ (Chapter 4), proceeds from the very notion of property to inform her analysis of the tax system. Normative issues of taxation must be informed by legal and philosophical reasoning about property (82). While Biron agrees that there is more to taxation than property (96), her account would press followers of Murphy and Nagel to reconsider its role. In a way, she follows Nozick’s libertarian methodology; however, she arrives at a different conclusion. This is quite relevant. Biron considers seriously the question of compensation (95–96), and suggests that democratic governments should inform their citizens on how their taxes are used, and how they benefit from their taxes. In connecting the individual’s economic self-interest to the promotion of socio-economic justice, Biron’s argument presses us to ‘focus debates about tax justice more specifically on the compensatory aspect of taxation, to make it clearer why it may be in their self-interest to pay tax’ (95). In this regard, looking at compensation as connected to property could have a positive impact on the perception of the tax system and hence its legitimacy. This brings us to a full discussion of libertarianism.
5. Libertarianism and redistribution
Peter Vallentyne, in ‘Libertarianism and Taxation’ (Chapter 5), makes a helpful claim. He proceeds from one of Nozick’s central libertarian principles, the principle of self-ownership (101), and argues that it supports a plurality of positions on taxation, not only the view held by Nozick. More precisely, the reasoning that says people fully own themselves and are allowed to appropriate previously unowned natural resources does not imply right-wing libertarianism. This reasoning is also compatible with centrist (sufficientarian) and left-wing libertarianism (of which Vallentyne distinguishes two forms). Vallentyne concludes that, even if ‘earmarked’, taxation would be limited under libertarianism, which ‘probably condemns all existing systems of taxation as unjust’ and thus is ‘inconsistent with the justice … of any modern state’ (109–110).
Interestingly, in Chapter 7, ‘Beggar Your Neighbour (Or Why You Do Want to Pay Your Taxes)’, Veronique Munoz-Dardé and Michael Martin make a theoretical claim which bears on practice in a relevant way and constitutes an instructive reply to libertarianism. A central argument of libertarian theory is that the losers of the market, those who cannot provide for themselves, should depend on charity to live, not state redistribution. The authors reject this claim with an argument (a) based on motivation, rather than rights (127–132), and (b) from a position that could be adopted by taxpayers themselves (132–137), as opposed to a position based on the interests of the needy. Essentially, the authors ask us to imagine two scenarios (137–138) where the beneficiaries of redistribution (say, the destitute) are equally well-off financially, but in one society this is accomplished by taxation-based mandatory redistribution, and in the other, by institutionalized charitable giving. Munoz-Dardé and Martin argue that even if the same level of provision for the destitute could be attained, we should still favour the taxation-based redistributive society, as charitable transactions are demeaning and emotionally costly for both the beggars and the donors (138–142). These costs are burdensome and inefficient.
6. Benefit tax
The critique of libertarianism continues in Part II. In ‘The Case for a Progressive Benefits Tax’, Barbara Fried explores the constitutional approach introduced by Hamlin in Chapter 1, and yokes the concerns of Part I to Part II. Fried tackles an underexplored, yet central question: should the design of tax policy take taxpayers’ preferences into account (148)? Is the majority’s position an appropriate rule to constrain the formulation of tax policy? Fried answers these question by engaging with the libertarian notion that taxation is justified when it aims to provide public goods that are undersupplied by the market, and when individuals are taxed according to their consumption of public goods, based on their estimated (shadow) fair market price. This is called ‘benefits taxation’. The first thing that comes to mind regarding benefits taxation, however, is that consumption of public goods is inversely proportional to wealth, and therefore a benefit tax would be regressive. Yet, Fried – basing her arguments on a persuasive conceptual exploration of the notion of public goods, the enjoyment of such goods, and mobility across jurisdictions – suggests that the assumptions on which this regressive taxation conclusion is grounded are mistaken (155–163). Fried asks us to consider what should count as a public good that justifies taxation (164). She believes that libertarianism should include much more than the minimal state, such as education, hospitals, transportation, culture and social norms.
7. Inheritance tax and land tax
The basis of Stuart White’s essay ‘Moral Objections to Inheritance Tax’ argument is the observation that inequalities will continues to increase, leading to a society where the share of income attributed to inheritance will rise. Inheritance will thus dwarf other determinants of distribution, such as merit (170). This could be countered by an inheritance tax, which would face objections. White distinguishes between four arguments against inheritance tax, and offers careful rebuttals to each (172–183). White’s replies are convincing. Yet, the rejection of these arguments is not a blueprint for the implementation of an inheritance tax, nor does it speak to questions about the level of an inheritance tax. However, since his philosophical arguments truly bear on practice, White’s position does allow us to grasp some of the political challenges that may arise on the route to implementation.
In Chapter 10, ‘The Politics of Land Valuation’, Ian McLean considers the case of land tax, a traditional topic in the history of economic thought, found in Adam Smith and David Ricardo (186). One of the key issues in this essay is the political acceptability of land taxation, which connects normative reasoning on distributive justice with political practice (194). This chapter thus offers another good example of testing a normative statement for the purposes of political acceptability. In particular, McLean asks whether land tax would be acceptable to voters (195). McLean’s methodology draws on public choice theory and uses his own typology of voters’ situations. For instance, he accepts that people rich in assets and poor in income could only pay land taxes once their properties are sold. Personally, I hope this study encourages the empirical testing of justice statements in public opinion. Also, the essay invites the reader of this book to question whether an inheritance tax, as discussed in the previous chapter, would achieve a higher, lower or the same level of political acceptability that a land tax could achieve.
8. Tax competition
Speaking of non-compliance and non-ideal theory, a central problem for taxation is the high mobility of capital across jurisdictions against the largely domestic character of tax policy and enforcement. Peter Dietsch wrote about this in his book Catching Capital (Dietsch Reference Dietsch2015), which highlights, among other things, the strategic aspect of tax competition. He pursues this work in Chapter 11, ‘The State and Tax Competition: A Normative Perspective’. While governments aim to stimulate their economies by lowering tax rates and attracting foreign investments, tax competition (in its different forms) undermines their fiscal autonomy, dampening their capacity to act on social justice (212). This is relevant from a moral standpoint: Dietsch rightly asks whether tax jurisdictions should be limited in their decisions on their tax policies in order to limit the negative consequences outside their borders (213–218). Aside from underlining the impact and moral problem of tax competition, Dietsch’s contribution is to formulate principles of justice that speak directly to it, thereby highlighting the importance of fiscal policy as a means to realize local autonomous political choices and promote global distributive justice (210). His two principles – the autonomy prerogative and the global justice constraint – offer concrete guidelines for the formulation of fiscal tax policy that prevents harmful tax competition, and thus promotes the fiscal autonomy of different states.
In the final chapter of the book, ‘Global Taxation and Accounting Arrangements: Some Normatively Desirable and Feasible Policy Recommendations’, Gillian Brock and Rachel McMaster discuss tax escape with a particular focus on its effects for developing countries (228). They also develop on one important type of tax competition: transfer (mis)pricing. They look at the specific accounting practices of firms – in particular the sales and purchases within companies and their subsidiaries – that are used to avoid paying taxes (228). The authors also characterize tax havens in detail (231–233), and shed light on the regulations available to counter these harmful tax practices. As Dietsch focuses on diminishing the problem of tax competition in the first place, Brock and McMaster offer practical solutions to enable the collection of global taxes (including air ticket and currency transaction taxes), with an explicit concern for their feasibility (237–242). We are thus given novel practical tools for healthier taxation practices at the global level.
Overall, the structure of the book is compelling. It is very well organized, and the essays complete each other, even when opposing views are put forward. This book could serve as essential reading in undergraduate and master’s level courses in political philosophy, philosophy of economics and PPE. I am pleased that I can now update my own Markets and Morals syllabus. Taxation: Philosophical Perspectives is bound to become a reference for the philosophical literature on taxation.
Shepley Orr
Please, take a moment to read the beautiful tribute to Shepley Orr (1969–2018), brilliant mind and co-editor of this book, by Professor Jonathan Wolff. https://jonathanwolff.wordpress.com/2018/09/21/shepley-orr-1969-2018/
Alexandre Gajevic Sayegh is an Assistant Professor of Political Science at Université Laval, Québec City, Canada. He teaches graduate and undergraduate courses in political theory, as well as in climate and energy politics. His research centres on the ethics, politics and governance of climate change. His current project focuses on the normative underpinnings of the green energy transition. Professor Gajevic Sayegh was previously a Postdoctoral Fellow at the MacMillan Center for International and Area Studies at Yale University and a SSHRC Postdoctoral Fellow at McGill University.
