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Taxation: Philosophical Perspectives

Martin O'Neill and Shepley Orr (eds.), Taxation: Philosophical Perspectives , Oxford University Press, 2018, 264pp., $55.00 (hbk), ISBN 9780199609222.

Reviewed by Matthew Braham, Universität Hamburg

Taxation is central to the existence of states. It is its income and expenditure. Taxation finances the production of goods and services that the market undersupplies, is the source of income for those in need, and is used to incentivize behaviour -- to encourage people to reduce the consumption of personally or socially or environmentally unhealthy things and practices. Tax policy is therefore a key element of the wherewithal of our personal lives. Yet, a quick search on work by moral and political philosophers on taxation will reveal an interesting fact: it is a subject that has not received much detailed attention. And, the work that has been produced is somewhat fragmented.

This collection aims at correcting this state of affairs by bringing together philosophers who work mostly at the intersection of philosophy and economics. We are offered 12 new essays that highlight taxation as a key issue for moral and political philosophers. As the editors, Martin O'Neill and Shepley Orr, point out in their introduction, taxation is an "irreducibly normative matter, and one which implicates a number of our concerns of social justice. When we think about issues of social justice in practice, we cannot avoid thinking at the same time about tax" (p. 2). Taxation is foundational to our thinking about property rights, democracy, and the nature and role of the state.

The volume is divided into two parts. Part I (seven essays) focusses on normative and conceptual questions. Part II (five essays) delves into a variety of policy issues. O'Neill and Orr's comprehensive introduction lays out the philosophical context for both parts. They begin with the stark and contrasting positions of Robert Nozick and John Rawls. In a memorable passage in Anarchy, State, and Utopia (1974), Nozick claimed that "Taxation of earnings from labour is on par with forced labor" (p. 169). In Nozick's libertarian world view, mandatory taxation is limited to providing for a minimal state that protects and enforces property rights only. Redistributive transfers for those in need are not morally permissible. Such transfers would be injustices, violations of just pre-tax entitlements. Providing for those in need is, rather, a task for charity. In contrast, Rawls believed that there are no pre-political constraints on property rights, which are themselves part of the "basic structure" of society. In the Rawlsian world, a tax system is just insofar as it is part of the overall system of rules and institutions that satisfy his two principles of justice. Hence, given that redistribution is required by Rawlsian justice, it follows that redistributive taxation is morally permissible.

Having staked out the Nozickean-Rawlsian divide, O'Neill and Orr situate the essays within the Rawlsian universe that had its fullest development in the now seminal treatment by Liam Murphy and Thomas Nagel in The Myth of Ownership (2002). Murphy and Nagel's standpoint is that "pre-tax income" has no special normative status; there are no primitive entitlements to property. Many of the essays engage directly with this thought and attempt to find a middle ground between the Rawlsian and Nozickean positions.

An illuminating feature of the collection is that it opens up what Alan Hamlin, in "What Political Philosophy Should Learn from Economics about Taxation", denotes as the "black box" technology of taxation. Political philosophers, he notes, are especially prone to call upon this technology to "put into effect whatever distribution of economic benefits and burdens that is required by the normative theory under discussion" (p. 20). Hamlin unpacks the black box with an elegant review and understanding of different economic theories of taxation: Optimal Taxation, the Political Economy of Taxation, and the Tax Constitution Approach. This is very refreshing and stands out from the stock "economics bashing" that many political philosophers -- even those who claim an economics background -- presumptively engage in without a whimper of thought and respect for the discipline. Hamlin notes that political philosophers with a non-ideal theory bent are well advised to study carefully and with an open mind what economists have to offer. It is fair to say that the collection provides the reader and the disciplines an intellectual programme that goes far beyond taxation.

Marc Fleurbaey's "Welfarism, Libertarianism, and Fairness in the Economic Approach to Taxation" immediately takes up the baton of optimal taxation discussed by Hamlin and defends it against the criticism set out in Murphy and Nagel's Myth of Ownership . Fleurbaey shows us that it is possible to enrich the orthodox optimal taxation theory of welfare economics with elements of libertarianism and fairness. Here, I believe we are observing progress in both philosophy and economics through careful modelling of normative principles bounded by weak descriptive conditions of rational choice. Again, critics of economics take note: Fleurbaey achieves his goal without a formula in sight; however, his formal work on taxation underlies the essay.

Geoffrey Brennan's "Striving for the Middle Ground: Taxation, Justice, and the Status of Private Rights" begins by directly engaging Murphy and Nagel and also by expanding on the Tax Constitution approach outlined by Hamlin. Brennan himself pioneered this approach together with James M. Buchannan in their influential The Power to Tax (1980). Brennan denotes his analysis as "quasi-Rawlsian". There is a methodological reason for this, because he asks what the "constitutional architecture" of society would deliver in terms of a tax system. But this is not about Rawls' Two Principles. Rather, it is an investigation into basic democratic procedures and the structure of private rights (that include property rights) and how these determine a just tax system. That is, the principles of taxation emerge from the interplay of constitutional elements. In an interesting twist to Nozick's "minimal state", Brennan discusses the "maximal state", which is the largest possible state subject to constitutional constraints, one of which is the system of private property rights. One of Brennan's thought provoking conclusions is that Rawlsian principles of justice in a capitalist society will not fully realize Rawls's own principles.

"Taxing or Taking? Property Rhetoric and the Justice of Taxation" by Laura Biron, is more traditionally philosophical. She, too, takes her cue from Murphy and Nagel, but her angle of analysis is that the starting point of thinking about the tax system is philosophical and jurisprudential thinking about property. In a sense, this is Nozick's line (although she comes to different conclusions) and Biron is engaging in a conversation with economists and asking them to go back to conceptual basics. And along with Brennan, she is skeptical about Murphy and Nagel's "myth of ownership".

Peter Vallentyne's "Libertarianism and Taxation" makes clear what a rich subject taxation is for moral and political philosophers. He argues that the moral doctrine that "individuals initially fully own themselves, that natural resources are initially unowned, and that individuals initially have certain unilateral moral powers (requiring no consent from others) to use and appropriate unowned natural resources" (p. 99) supports a variety of views on just taxation. Nozick's right-libertarian view that taxation beyond a charge for the protection of property rights is "on par with forced labor" is just one view. There are also sufficientarian (centrist) and left-libertarian views , with the latter breaking down into two sub-forms of equal-share and equal-opportunity libertarianism. Each of these views permit taxation over and above the Nozickean minimum.

Alexander W. Cappelen and Bertil Tungodden's "Tax Policy and Fair Inequality" is another prime example of an economic analysis that builds in substantive normative reflection. It also picks up where Fleurbaey left off. Cappelen and Tungodden aim to explore the shape of a liberal-egalitarian system (Rawlsian) and in particular to try and get around the well-known problems of responsibility-insensitivity that besets Rawlsian justice (avoiding exploitation of the hardworking and talented). One fascinating result is that they show precisely why political philosophers need to peer inside the "black box" of taxation. In their framework,

a progressive income tax system may have two opposing effects on fairness. It may increase the level of unfairness in society by eliminating fair inequalities reflecting differences in responsibility factors, but it may also reduce the level of unfairness in society by eliminating unfair inequalities reflecting differences in non-responsibility factors. (p. 121)

In other words, we are reminded of the falsity of what John Harsanyi once called the "all good things come together assumption". Desirable values are not always positively correlated. Another very appealing feature of this essay is that the authors cap their analysis with an empirical case study of their fair tax system using Norwegian data. The essay is a "must read" for the modern political philosopher eager to engage with policy-making.

The final essay in Part I is another piece of traditional normative analysis. "Beggar Your Neighbour (Or Why You Do Want to Pay Your Taxes)" by Véronique Munoz-Dardé and M. G. F. Martin takes issue with libertarian views on taxation, in particular that the needy are to be provided for by charity rather than via state redistribution. They argue that there are reasons why redistributive taxation instead of charitable giving would be favoured by the taxpayers themselves. The argument can be summed up as follows: mandatory taxation is simply a more efficient way of collecting and distributing resources for the needy. They write:

Even if you, as a well-meaning individual who keeps their life in good order, manage to provide a large amount in donations to various charities, still it is likely that you will be bothered in some way or another by further charitable organizations looking to raise their income to meet the demands on them. In such a world, the irritations of the double-glazing salesman, or the mortgage salesman, or the new phone deal, would pale in comparison with the campaigns run by the major charities seeking to meet the needs of the poor. (p. 138)

Munoz-Dardé and Martin argue that it is reasonable to reject such a system. This idea is crying out for a carefully constructed economic model that actually delivers a formal proof of the proposition. Until then, the jury is still out.

Part II begins with "The Case for a Progressive Benefits Tax" by Barbara H. Fried. Fried opens Hamlin's "black box" of taxation and investigates it from a "Tax Constitutional Approach". That is, we are presented with the question of whether we "should take the preferences of taxpayers into account in deciding how tax revenues are raised and spent", and are provided with the trite answer: "Of course we should". And it is observed that in a democracy we "automatically will", as these decisions are delegated to elected representatives. But as Fried points out, there is a lot more here than meets the eye. We are asked a difficult further question: is a majoritarian or a supermajoritarian decision rule the appropriate one for determining fiscal policy? Starting from a broadly libertarian premise that taxation is just if it is limited to provision of public goods that the market undersupplies, Fried argues that this implies an individual's tax burden should be limited to cover the price of these goods. This is commonly referred to as "benefits taxation". She then makes an intriguing case for a strongly progressive tax rate for benefits taxation and one that will even permit redistribution for the purposes of social welfare. She ends with a more fundamental issue: "What counts as a public good (benefit) for which the state can rightly charge?" She believes it includes much of our built and social and physical environment: from norms of civility to architecture, good teachers, and well-functioning hospitals. Her version of libertarianism seems to have the capacity to accommodate this position.

Stuart White's "Moral Objections to Inheritance Tax" returns us to a more standard way that philosophers use to look at the world. His task is to carefully dismantle four major moral arguments against inheritance tax: the double tax objection, the equity objection, the virtue objection, and the wrong problem objection. The first says that inheritance tax is unfair because tax has already been paid on the assets; the second says that inheritance tax is unfair because it leads to unequal tax burdens on people who have equal wealth but choose to use that wealth differently; the third says that inheritance tax penalizes virtuous behavior; and the forth says that inheritance tax does not solve the problem it sets out to address (inequality), because it is fixed on inequality of possessions whereas the real issue is inequality of consumption. Depending on your moral priorities, you will or will not agree that White achieves his objectives. It really depends on whether you gauge these objections to be the "strongest possible". Also, defeating four objections does not imply that that the path is clear to impose an inheritance tax. The jury is out on this one, too.

"The Politics of Land Value Taxation", by Iain McLean, ends with a very abrupt paragraph: "Property is not theft. But it could be taxed in a more rational way than at present. In the long run, everybody would gain" (p. 201). This says it all. McLean argues that a land value tax "has both theoretical and practical merit". He examines both the intellectual and political history of land tax drawing mostly on examples from the United Kingdom. A key part of the essay is the section on the practical politics of a land tax. Having discussed the merits of a Land Value Tax, McLean is aware that it is also unpalatable for many, so he asks "How then could a brave government make Land Value Tax for housing acceptable to the median voter?" Here, McLean engages in a form of political engineering with the aid of Public Choice Theory. There isn't space here to set out his four suggestions, but they are eye-opening -- particularly his case of the "Devon widow", which is the situation of an asset rich/cash poor household. His solution is to defer the tax liability until after death or at the time the property is sold.

In "The State and Tax Competition: A Normative Perspective", Peter Dietsch moves the discussion to an area of tax justice that has been largely overlooked by political philosophers: the strategic interaction effects of tax regimes in a global economy. He targets the effect on social justice when states compete with each other for mobile capital through low tax rates and favorable regulation. Although this competition is clearly a way for governments to stimulate economic growth and create jobs, it simultaneously interferes with, and even undermines, the fiscal independence of states and hence their ability to fund public services and meet local demands of social justice. That is, there are spill-over effects of fiscal policy. The underlying question is whether there are any moral limits to the migration of the tax base between countries. "The crucial question", asks Dietsch, "becomes which portion of fiscal interdependence should be considered benign from a normative viewpoint, and which portion should be condemned as problematic" (p. 214). He answers this by introducing two normative principles: the autonomy prerogative and the global justice constraint . That is, for fiscal policy to be just, it must be able to implement autonomous political choices and promote distributive justice globally. Thus, jurisdictional rules on tax competition must be designed so as to respect these twin principles.

In the final essay, "Global Taxation and Accounting Arrangements: Some Normatively Desirable and Feasible Policy Recommendations", Gillian Brock and Rachel McMaster delve into the nitty gritty of accounting practices and how they contribute to what is cogently termed as tax escape -- tax avoidance and evasion. In particular, they examine the practice of "transfer pricing" used for sales and purchases within a company or group of companies. The practice permits profits to be disguised and taxes avoided. Brock and McMaster also provide a review of the characteristics, scope, and effects of tax havens. They offer insight into means for regulating tax escape, including such global taxes as air ticket taxes and currency transaction taxes. At a very practical level they set out four normative and four feasibility criteria for collecting global taxes. They show that air ticket and currency transactions taxes meet these criteria and to their mind serve as an example of how to implement Thomas Pogge's Global Resource Dividend. The book thus ends exactly with the point made at the outset by Hamlin: we need to open up the black box of taxation.

This is a friendly review from someone who works at the interface of philosophy and economics. Does the collection come up short in any way? That would require dissecting each essay –which I haven't taken to be my remit. My remit is the collection as a whole, which I find to be an excellent entry into the world of taxation and an exercise in that growing research area we call PPE. One of my own tests for how good a book is, is whether I would include it as essential reading for an undergraduate course. Yes, I certainly would.

The book's overall message is that the Libertarian, Rawlsian and standard welfare economics views of taxation are much richer, complex, and flexible than generally thought. Regardless of the rhetorical appeal, it really would be best were we to refrain from using the Nozickean forced labour argument, to refrain from simply stating that a tax system is just if it is part of the "basic structure", and to refrain from setting optimal tax theory against fairness. And even if we agree that a tax is justifiable for whatever purpose, it requires careful and detailed elaboration of the tax system itself.

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The Ethics of Taxation

Richard baron finds that philosophy need not be taxing..

In the Western world the proportion of the economy controlled by the state has grown enormously over the last century, and pressures on the state are set to rise as people live longer, meaning that tax will continue to rise for the great majority of the population. What are the rights and wrongs of asking so many people to pay so much?

To answer this we can ask several questions, including how much tax should be collected in total, which objectives of taxation are legitimate, and how individuals should conduct themselves as taxpayers. We will address these questions by using arguments from political philosophy, and the following three approaches to ethics:

• Utilitarianism , which tells us to aim for the greatest total happiness across the population. In the economic sphere, we can interpret ‘happiness’ as the satisfaction of our desires; and so utilitarianism as aiming for maximum satisfaction of desires.

• Deontology , which bases ethics on the idea of duty.

• Virtue ethics , which focus on the virtues we should have, and on what constitutes a virtuous life. A broad conception of the virtues must be used here, encompassing not only virtues such as honesty, but also virtues such as using one’s talents and leading a fulfilled life.

The Total Amount of Tax

For a utilitarian the most important economic goals are to ensure that goods and services are available to allow everyone to have a decent life, and to ensure that these resources are distributed widely enough for all or most people to enjoy them. A true utilitarian would only care about total satisfaction, not about the evenness of its distribution, but with taxation we’re discussing the distribution of resources. If each person has modest resources, that should generate more satisfaction in total than if the same total resources are concentrated in the hands of a few people. Taxation plus government spending are an obvious way to achieve redistribution to ensure that everybody gets something.

There is a certain tension here. Taxation and spending help to achieve wide resource distribution, but high rates of tax reduce investment and incentives, which makes it hard to generate sufficient total resources. Too much redistribution may thus mean too small a pie to share out. Utilitarians must therefore strike a balance. Economists, rather than philosophers, are the ones to advise them on how to do this balancing of interest to get the most productive result. This is not surprising. Utilitarianism merely lays down a computational rule. Utilitarians need experts from other disciplines to do the computations for them.

Unlike the utilitarian, the deontologist does not tell us to make computations. Instead, he or she lays down absolute duties. One common such duty is to respect other people’s property rights. This could be interpreted to mean that there should be no tax at all, because tax is the forcible transfer of property away from taxpayers. On the other hand, the duty to respect property rights could be used to argue that any social resources one used should be paid for, even if one did not ask for those resources to be provided. Thus in order not to be a thief, anyone who uses a public hospital, or even a public road, should make sure that he or she pays tax to cover their use. But it is difficult to make this argument watertight. Is it realistic to ask people to opt out of using public roads if they don’t want to pay tax? They would have to move to a wilderness somewhere. But why should they be made to do that, when they already own their homes? Deontology therefore does here what it often does. It offers arguments which pull in opposite directions, and leaves us completely uncertain about what to conclude.

Virtue ethics can be a bit more helpful on the question of the justice of taxation. Several virtues seem more likely to be exercised if tax rates are moderate than if they are very high. One should use one’s talents to the full. Financial incentives can encourage people to use their talents, but very high taxation dampens down those incentives by reducing take-home pay. Another virtue is charity, either in cash or in time. The more take-home pay people have, the more likely it is that they will feel able to afford charitable donations; and the higher peoples’ pay rates, the easier it will be for them to take time away from paid work to perform charity work or other forms of civic service, as school governors or magistrates for example. A third virtue is independence. It is good to earn what one needs rather than to depend on subsidies from others. Lower rates of taxation make independence more easily achievable.

Let us also turn to political arguments based on the fact that taxation is coercive. In Anarchy, State, and Utopia (1974), Robert Nozick argued that imposed taxation is a violation of our rights. Property is mainly shared out among us initially by a process of acquisitions a long time ago, and by exchanges since then. If the initial acquisitions and the subsequent exchanges were just, then the current distribution of property is just, and it would be unjust to interfere with that distribution by force. If people individually agree to pay for things like a police service, that’s fine; but the majority should not force the unwilling minority to contribute.

One of the most interesting challenges to this line of thought was given by Liam Murphy and Thomas Nagel in The Myth of Ownership: Taxes and Justice (2002). They say that we should not think in terms of a natural distribution of income and wealth, with a tax-levying state interfering with that distribution. Rather, the state is what gives the stability that allows high incomes. They point out that in a world without government there would be no security of property, no system of enforceable contracts, and so on. As a result, overall levels of wealth would be much lower than they actually are. It is not the case that the existing wealth would be distributed differently without a tax-levying state: the wealth would mostly not exist.

This seems to be true. But Murphy and Nagel’s argument is not enough to legitimise high levels of taxation and a big state. Suppose we had a minimal state, which provided security and a legal framework for business, but no more. So there would be no state benefits, and all schools, hospitals and roads would be private, profit-making, enterprises. The distribution of income and wealth in that minimal state might be very different from what it actually is, but the total income and wealth might not be so different. Thus Nozick could reply that this distribution, with a minimal state, should be assumed to be just. If so, any coercive interference by taxation to create a bigger state would violate peoples’ rights.

This response does not show that a big state would be wrong, but it does put the pressure back on those who advocate a big state to show that a big state is justified despite the coercion involved.

The Legitimate Objectives of Taxation

Tax can be used for all sorts of purposes, and it is often clear what ethicists of any particular kind would say about these purposes. We can start with the provision of law and order and the more extensive public services such as healthcare and education. Utilitarians will approve of taxation for these things because they allow more goods and services to be produced, and they also allow more non-materialistic desires to be satisfied. Virtue ethicists will approve because these services enhance people’s opportunities to use their talents and to lead flourishing lives.

When we turn to aid to the poor, utilitarians will approve because transferring resources from rich to poor increases the happiness of the poor more than it reduces the happiness of the rich. Virtue ethicists will approve because with redistribution the poor can be helped to flourish and develop virtues, and because looking after the less fortunate is itself a virtue (although voluntary charity may be a greater virtue than forced payment). And deontologists can recognize a duty to care for the poor. The greatest of all deontologists, Immanuel Kant, certainly believed in duty to the poor, although he did not have a tax-funded welfare state in mind as a response. However, none of this means that any kind of ethicist would favour unlimited provision of any of these good things through the tax system. As we have already seen, one has to consider the consequences of the overall level of taxation.

A more controversial objective is the promotion of equality, in the sense of equality of economic outcome (ie wealth) rather than of equality of opportunity. Taxation can very easily be used to make the distribution of incomes and wealth more equal, either by transferring cash from the rich to the poor, or by providing the same state services to everyone while taxing the rich more than the poor in order to pay for them. Greater equality may also be an accidental outcome of using the tax system to do other things. But it can also be a goal in itself. Is it legitimate to pursue equality through taxation?

There is a utilitarian argument for greater economic equality. If more equal societies are happier, more stable, have lower crime rates and so on, then a utilitarian would want to promote equality unless that interfered too much with other utilitarian objectives. We must let the sociologists tell us whether more equal societies do have those advantages.

One can also argue for equality on the basis of justice. The idea is that if there is no positive justification for people receiving unequal shares of the available resources, then they should receive equal shares, otherwise an injustice is done to those who get less than they would under an equal distribution.

To consider the merits of this argument we should start with the work of John Rawls, and in particular with his book A Theory of Justice (1971).

Rawls argued that social inequalities should be arranged so that the greatest benefit is gained by the people with the fewest advantages. However, he says an unequal system might actually benefit the disadvantaged more than an economically egalitarian one. For example, inequalities of income would be perfectly acceptable if they were a necessary result of there being incentives which encourage skilled people to work hard and entrepreneurial people to take risks, so long as the result was that those with the least income-earning potential were still made better off than they would otherwise have been. That looks sensible. Why not let the rich grow richer, if the poor are helped by their doing so? The poor will possibly even be grateful.

Not everyone accepts that inequalities like these would be just. For example, in his book Rescuing Justice and Equality (2008), Gerald Cohen argued that Rawls was far too permissive of inequality. He pointed out that we are free and conscious beings. However, the talented person who says that he or she will only work hard, and thereby benefit the whole economy, if enough money is offered, is acting like a vending machine. A vending machine will only give you what you want if you put the money in. But we are not vending machines. We can work out what we would do, given the financial incentives. Then we can decide to do it anyway, without the incentives.

Cohen said that we could work out what we would do in Rawls’s society, which has inequalities to give the right incentives to develop wealth, and then we could do the same things without the incentives – and without the inequality. Cohen argued that this would give us even greater justice than Rawls’ system would achieve. Cohen could not claim that this approach would be practical – the fact is that people do respond to financial incentives – but he could claim that it would be just. At least, he could claim that, if we accepted the basic premise that equality is generally more just than inequality. But should we accept that premise?

Rawls provides a key argument for equality. In his view, the way to establish what means of distribution of goods and resources is just, is to imagine what people would want if they were designing a society in which they themselves would live, but they had no idea of what family, talents or other circumstances they would have in that society. In that situation, they could expect nothing better than an average share, and would have no reason to accept as just anything substantially worse. They would therefore choose an egalitarian society, subject to the allowance for inequalities we have discussed.

But it is not at all clear that people would only accept inequalities which benefited the worst-off, as Rawls supposes. Suppose people had a choice between two societies, X and Y. In both societies, everyone would have at least a tolerable standard of living, and no-one would suffer abject poverty. In society X, the worst-off person would have an income of £15,000 a year, a few people would have incomes of £20,000, and the great majority would have incomes of £25,000. In society Y, the worst-off person would have an income of £14,000, a few people would have incomes of £19,000, and the great majority would have incomes of £27,000. Someone making a choice of which society they would prefer to be part of, but who did not know who they would be within it (Rawls’ ‘veil of ignorance’), could reasonably take a chance on being someone with the income of the majority, and so prefer society Y. Rawls was wrong to assume that he or she must rationally prefer society X.

The Conduct of Taxpayers

Most taxpayers pay their taxes, without fuss. But not all taxpayers act in this way. So lastly let’s look at whether two other forms of behaviour can be ethically acceptable: tax evasion, and tax avoidance.

Tax evasion involves knowingly mis-reporting the facts: for example, declaring an income of £50,000 when the true figure is £60,000; or declaring that an asset is owned by one company in a group when it’s really owned by another, so paying less tax.

It would be very hard to give an ethical justification for tax evasion. One way to try to do so would be to argue that the state, in imposing taxation, engaged in theft, and that in order to prevent the theft one could lie to the state, just as one could lie to a thief. This argument would have some plausibility in the context of a regime that was imposed, rather than one democratically chosen in free elections. That is, it is possible to see a regime that is not freely elected as merely a gang of bandits, even if they are sometimes benevolent bandits. But there are many countries in which governments are freely elected, and therefore their taxation demands may be considered legitimate.

Unlike tax evasion, tax avoidance does not involve concealing information or lying. Instead, it involves structuring business transactions to ensure that less tax is payable than one might otherwise expect. The most ethically challenging examples in this area are to be found in the complex schemes used by some groups involving networks of companies and partnerships in several countries. Tax avoidance works through compliance with the precise letter of the law, not through breaking the law. That is to say, tax savings achieved may be accord with the words of the law, but it is clear that if Parliament or other legislative bodies in other countries had thought about such schemes, it would have passed different laws in order to defeat them.

A utilitarian, concerned with aggregate welfare, might be quite relaxed about tax avoidance. After all, when tax is avoided, wealth is not destroyed: it is merely kept in the private sector instead of being transferred to the public sector. The main utilitarian concern would probably be that it would result in an unintended distribution of the tax burden, as some of the burden would be shifted from the rich onto people on modest incomes who cannot afford clever tax lawyers. That would reduce their satisfaction more than it would increase the satisfaction of the better-off people who have reduced their tax burdens. But that loss to the poor might not happen. For example, where shares in companies are held by pension funds, the pensions of ordinary people can be boosted when those companies avoid tax. A virtue ethicist would be likely to view tax avoidance with disfavour. It is, after all, hardly virtuous to exploit rules knowing that one is exploiting them in unintended ways to redistribute the disadvantage away from oneself. A deontologist would not positively favour tax avoidance, but might not condemn it either. Deontologists can easily argue for a duty to obey the law: yet obeying the law is something the tax avoider takes care to do, in his own special way.

© Richard Baron 2012

Richard Baron is a philosopher and a tax policy adviser. His website is www.rbphilo.com .

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Philosophical Foundations of Tax Law

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Tax law changes at a startling rate—not only does society change and demand change in the tax system, but changes in the political climate will force change, as well as many other competing pressures. With this pace of change, it is easy to focus on the practical and forget the core underpinnings of system, to drive the system in a direction which fits with its philosophical justifications. Thus taking a pause to remind ourselves of those principles and how they can operate in the modern tax system is crucial to ensure that the tax system does not diverge too far from what it should be or could be. It is essential that we have a complete understanding of the answers to some of the seemingly basic questions which surround taxation, before we can begin to think about what a tax system should look like. The collection ties together some of the major themes in unpicking the philosophical foundations of tax law and tackles the difficult questions that surround this area. The chapters consider practical issues in their analysis, in order to provide a coherent and fulsome analysis of the basis for tax law, starting with some of the issues in Murphy and Nagel’ s The Myth of Ownership , which allows us to consider how tax systems should move forward in the modern world, with a sound philosophical basis, to provide the practical tax system that the state requires and the citizens deserve.

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Ethics of Corporate Taxation: A Systematic Literature Review

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• First Online: 05 May 2020
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• Francesco Scarpa 2 &
• Silvana Signori 2  

In recent times, corporations have been scrutinized for their tax behavior. Various groups of stakeholders have expressed their concern over certain corporate tax strategies that allow multinationals to pay ridiculous amounts of tax in the countries where they operate. Although national governments and international institutions are developing initiatives to reform tax rules to ensure that companies pay their fair share of tax, the international tax framework still offers MNEs several opportunities for minimizing their tax burden. In order to help businesses self-regulate their behavior in those “gray areas” where the tax law is imperfect and to drive changes in legislation, corporate taxation has recently been included in the business ethics field. In other words, the ethical responsibilities associated with corporate taxation have started to be investigated and companies are increasingly expected to exhibit a morally responsible approach to tax planning, above and beyond compliance with the letter of the law. The purpose of this chapter is to present a systematic review of literature dealing with the ethical issues associated with corporate taxation. A better understanding of the evolution, the scope and the state of the art of this academic debate is provided by the literature review. Three main topics will be critically discussed: the ethics of tax evasion, the ethics of tax avoidance and the ethics of tax practitioners. Finally, suggestions and future research paths will be offered, in order to encourage studies to foster the debate on the ethics of corporate taxation.

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Ethical Standards for Tax Planning by Corporations

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∗ = Articles included in the systematic literature review

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Scarpa, F., Signori, S. (2020). Ethics of Corporate Taxation: A Systematic Literature Review. In: Rendtorff, J. (eds) Handbook of Business Legitimacy. Springer, Cham. https://doi.org/10.1007/978-3-319-68845-9_115-1

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Theories and philosophy of property taxation

Since its birth, property taxation has been a major source of revenue. Taxation in general, is an important conduit to generate revenue and also a tool to redistribute wealth. It can act as a tool to manage land use, urban density and expansion, speculations, economic cycles and transactions. Nowadays, property taxation is more important than ever, especially because a great number of countries are not able to finance their selves. Therefore, their first course of action is to establish new taxation measures (most of the times not affordable) on properties. This paper aims to examine the property taxation concept from a philosophical point of view. The writer is focusing on Aristotle’s work ‘Politics’ and others. Why property tax is necessary? According to Aristotle, property forms part of the household; consequently, the art of acquiring it, forms the basis of managing the household. Household is made up of freemen and slaves. He asserted that no person can live well, unless provid...

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