Moral Objections to Inheritance Tax

Taxation of wealth transfers across generations (‘inheritance tax’) is strongly supported by social justice considerations but is also politically and morally contentious. As well as citing concerns about the possible impact on motives to work and save, critics present several moral objections to inheritance tax: it allegedly entails ‘double taxation’; it taxes citizens differently according to how they use their wealth, violating equity; it penalizes the ‘virtuous’ use of personal wealth; and it targets the wrong problem, which is not unequal holdings of wealth as such but unequal consumption. This paper addresses each of these four criticisms, indicates their flaws and limitations, and shows that they do not rebut the case for inheritance tax on grounds of social justice.

Libertarianism and Taxation

Chapter 5 discusses the implications of libertarianism for just taxation. Libertarianism holds that agents fully own themselves and have certain moral powers to appropriate natural or abandoned resources. Some versions of libertarianism preclude the possibility of just taxation, but the author claims that other versions can, under very limited circumstances, endorse two kinds of taxes as just: taxes on right-infringers for the cost of rights-enforcement and taxes on anyone with an excess share of the value ownership rights over natural resources. Other kinds of taxation, such as income taxes, human resource (talents) taxes, and artifactual resource taxation are not just on any version of libertarianism.

Welfarism, Libertarianism, and Fairness in the Economic Approach to Taxation

The economic theory of income taxation has recently been eager to apply philosophically prominent approaches to the selection of the optimal tax on earnings. This chapter presents and compares the consequentialist–utilitarian approach to taxation developed by Mirrlees and defended by Murphy and Nagel, to the fair allocation approach, as adapted to taxation problems by Fleurbaey and Maniquet. The fairness approach does retain an element of libertarianism and gives some value to market earnings. The two approaches have different recommendations for taxation, especially regarding low incomes, which are given absolute priority under the fairness approach, and may be submitted to lower tax rates out of respect for the diversity of preferences among the least skilled workers.

The State and Tax Competition

Governments increasingly use their fiscal policy to attract mobile capital from abroad. This tax competition puts a strain on the international fiscal system by undermining the capacity of states to make autonomous fiscal choices and by exacerbating inequalities. The existing regulatory framework is not able to address these challenges. Yet, what considerations should guide our efforts for reform? This chapter argues that a first necessary step consists in understanding the principles that justify the state as the principal locus of fiscal control in the first place. Building on an account of the legitimacy of the state and its fiscal powers, the chapter shows how tax competition is in tension with the principal objectives this account assigns to the state. It then outlines a normative response to tax competition that relies on both reforming jurisdictional rules and redistribution between states.

Striving for the Middle Ground

Does the fact that considerations of distributive justice entitle governments to interfere with the distribution (of income/wealth/consumption) that emerges from market interactions imply that the property rights structure on which that market distribution is based has no normative authority in structuring government/citizen interactions? That claim is one implied by Nagel and Murphy in their book The Myth of Ownership. Chapter 3 proposes that this claim is false; but insists that denying that claim does not entail denying the legitimacy of public redistribution through the tax-transfer process. One central claim is that the concept of horizontal equity—that individuals should pay taxes in relation to their aggregate returns from market activity—may be thought of as a principle that appropriately reconciles the competing normative claims of the private property rights structure on the one hand with other requirements of distributive justice.

Global Taxation and Accounting Arrangements

Chapter 12 considers why reforms to several taxation arrangements are needed, especially in the quest to reduce global injustices. The role of tax havens and transfer pricing schemes in facilitating massive tax evasion and abusive tax avoidance are discussed, along with some of the initiatives aimed at improvements. The case for carefully crafted new global taxes, including air ticket taxes and currency transaction taxes, is also considered. The chapter argues that all the reforms proposed here are normatively desirable and feasible. The chapter also engages with the work of prominent proposals concerning global taxation, considering their strengths and weaknesses.

The Case for a Progressive Benefits Tax

Libertarians have long argued for a “benefits tax,” which sets tax rates to approximate the shadow market price for the public goods each taxpayer consumes. Libertarians have assumed that because consumption of explicit public goods does not rise as fast as income or wealth, a benefits tax would likely be regressive. That is to say, the rich would pay taxes at a lower marginal rate than the middle class and the poor. Chapter 8 argues that, contrary to the libertarian assumption, a benefits tax could yield almost any rate structure, including a quite progressive one, depending on the definition applied to “public goods” and the structure of the shadow market in which it is imagined polities operate.

What Political Philosophy Should Learn from Economics about Taxation

The modern economics literature provides three approaches to the analysis of taxation: one focused on the optimal balancing of a variety of normative considerations, a second focused on the relationship between taxation and (democratic) political processes, and a third focused on the possibility of constitutional limitations on the power to tax. This chapter outlines each of these approaches before discussing their compatibility and their implications for a more general normative political philosophy of taxation. It is argued that any coherent account of taxation in political philosophy should account for its non-ideal nature and draw on elements of all three economic approaches.

Introduction

This chapter situates philosophical discussions of taxation with reference to the strongly contrasting approaches to tax, property, and justice embodied in Robert Nozick’s Anarchy, State, and Utopia, and John Rawls’s A Theory of Justice. The twelve chapters of the book are situated against the opposing philosophical poles provided by the libertarian and Rawlsian approaches to tax, and we describe in particular the further development of the Rawlsian view by Liam Murphy and Thomas Nagel in their book The Myth of Ownership: Taxes and Justice, which is a focal point for a number of the following chapters. We explain why and how taxation should be seen as central to political philosophy, given the importance of tax policy for both domestic and global justice, and given the close connections that taxation has to issues of property rights, democracy, public justification, state neutrality, stability, political psychology, and a range of other issues.

Tax Policy and Fair Inequality

Chapter 6 discusses the implications of a liberal egalitarian approach to tax policy and argues that such an approach avoids two fundamental challenges faced by the standard welfarist approach: the “exploitation of the hard-working” and the “exploitation of the talented.” It is also argued that the liberal egalitarian approach is able to capture the distinction between fair and unfair inequalities in a way that the welfarist approach fails to do. A major challenge for the liberal egalitarian approach to tax policy, however, is that it requires information that typically is unavailable to tax authorities in order to be implemented. The chapter concludes that this approach can still be used in the evaluation of tax policies.