Monday, November 24, 2008
Since taxes have different purposes, the concept of tax fairness is inescapably plural, assuming different forms according to the purpose of the tax that is subject to investigation. This paper has considered three purposes for taxation – to collect revenues to finance publicly-provided goods and services, to regulate social and economic behaviour, and to shape the distribution of economic resources – and examined principles of tax fairness applicable to each. Where taxes are collected in order to finance government expenditures on goods and services, the traditional benefit and ability-to-pay approaches provide useful principles of tax fairness. Where taxes serve a regulatory purpose, the fairness of the tax or tax incentive depends on the fairness of the regulatory objective, the relationship between the tax measure and the regulatory goal, and the distributional implications of the tax or incentive. The use of taxes for distributive purposes depends on the underlying concept of distributive justice, as a consequence of which the concept of tax fairness dissolves into broader questions of distributive justice.
Within this pluralistic normative framework, this paper has also reached specific conclusions with respect to the kinds of taxes that might reasonably exist for each of these purposes, favouring the use of benefit taxes and user fees for specific purposes, a broad-based VAT to collect revenues for more general government expenditures, regulatory environmental taxes, as well as progressive income and wealth transfer taxes. Although all of these taxes are not found in all modern welfare states, and the extent to which different countries rely on different taxes differs, most of these taxes are found in most modern welfare states, suggesting that our tax practices are not as irrational or inequitable as they are sometimes made out to be. Although an application of this pluralistic approach to tax fairness would almost certainly recommend reforms to various taxes as well as changes to the mix of taxes that are collected in any particular country, it would invariably recommend a mix of fair taxes in accordance with each of their purposes.