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. Stantcheva found the deepest partisan divides when asking about issues of fairness, including equity concerns surrounding the distribution of wealth and the transmission of wealth between generations. At least, he could claim that, if we accepted the basic premise that equality is generally more just than inequality. Property is mainly shared out among us initially by a process of acquisitions a long time ago, and by exchanges since then. An official website of the United States Government, Introduction | 1 | 2 | 3 | 4 | Print PDF PDF. 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. The tax … 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. Impact 50: Investors Seeking Profit — And Pushing For Change. It is good to earn what one needs rather than to depend on subsidies from others. W hat's at Stake? 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. In her survey data, for instance, Stantcheva found that 70 percent of respondents endorsed money and wealth in the United States being more evenly distributed; almost half of all respondents said income inequality is a serious problem. Stantcheva offers a few good reasons. 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). 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. Too much redistribution may thus mean too small a pie to share out. “But as the key determinants of policy support, they are definitely for economists to study.”. Economists, rather than philosophers, are the ones to advise them on how to do this balancing of interest to get the most productive result. Using a combination of survey data and experimental techniques, Stantcheva identifies fascinating patterns in the way Americans evaluate tax policy. Instead, it involves structuring business transactions to ensure that less tax is payable than one might otherwise expect. 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. It is not the case that the existing wealth would be distributed differently without a tax-levying state: the wealth would mostly not exist. Tax avoidance works through compliance with the precise letter of the law, not through breaking the law. (CCH) 192 (2013); Wnuck v. Commissioner, 136 T.C. Financial incentives can encourage people to use their talents, but very high taxation dampens down those incentives by reducing take-home pay. Partisan effects are very obvious, however, when people are asked about the effect of taxation on the economy as a whole, rather than on individual behavior. There is a utilitarian argument for greater economic equality. Arguments Against Junk Food Taxes. The first section groups these arguments under five general categories, with variations within each category. Not everyone accepts that inequalities like these would be just. The government and courts are not precluded from penalizing taxpayers who raise a frivolous argument not addressed in this document. 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. In her survey, Stantcheva uncovers some interesting patterns, including moments of both broad consensus and deep division. Thus Nozick could reply that this distribution, with a minimal state, should be assumed to be just. For example, in his book Rescuing Justice and Equality (2008), Gerald Cohen argued that Rawls was far too permissive of inequality. 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. I’m an historian, a regular columnist for Tax Notes magazine, and a writer for the Tax Notes blog. Most taxpayers pay their taxes, without fuss. Outlined below are the key arguments for and against taxation of sales on the Internet. This site uses cookies to recognize users and allow us to analyse site usage. They would therefore choose an egalitarian society, subject to the allowance for inequalities we have discussed. 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. Not so much. And she voices a certain reluctance to even try. 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. Let us also turn to political arguments based on the fact that taxation is coercive. But Murphy and Nagel’s argument is not enough to legitimise high levels of taxation and a big state. This argument would have some plausibility in the context of a regime that was imposed, rather than one democratically chosen in free elections. In both societies, everyone would have at least a tolerable standard of living, and no-one would suffer abject poverty. If so, any coercive interference by taxation to create a bigger state would violate peoples’ rights. Suppose we had a minimal state, which provided security and a legal framework for business, but no more. Like every modern political debate, the argument over the behavioral response to taxes features a lot of commentary from both ends of the spectrum and not much from the middle. We can work out what we would do, given the financial incentives. They point out that in a world without government there would be no security of property, no system of enforceable contracts, and so on. Rather, the state is what gives the stability that allows high incomes. © 2020 Forbes Media LLC. You may opt-out by. 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. All Rights Reserved, This is a BETA experience. Why bother to invest so much time in trying to understand how people think about taxes? Opinions expressed by Forbes Contributors are their own. A utilitarian, concerned with aggregate welfare, might be quite relaxed about tax avoidance. 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. It would be very hard to give an ethical justification for tax evasion. Let us also turn to political arguments based on the fact that taxation is coercive. This document describes and responds to some of the common frivolous arguments made by individuals and groups who oppose compliance with the federal tax laws. Views differed depending on partisan self-identification. Oct 31, 2012, 11:59 AM Over the past few years, many cities and states have considered taxing sodas and other sugary beverages. Deontology therefore does here what it often does. Cohen argued that this would give us even greater justice than Rawls’ system would achieve. II. Stantcheva finds that partisan divisions are less evident around the estate tax because pretty much everyone seems to believe that rich people are highly sensitive to the tax. They would have to move to a wilderness somewhere. Modern economists tend to be shy when asked to venture deep into fairness debates. Apparently, voters have internalized that polarization when it comes to their own assessments of tax policy. “Do people focus more on policies’ distributional implications or rather on their efficiency costs?” Stantcheva asks. “People tend to believe that higher estate taxes drive increased tax evasion and moving across state lines, with less common perceived responses being saving less, being less entrepreneurial, and having one’s spouse stop working to decrease overall income,” she writes. “It is mostly fairness considerations, rather than simply the perceived distributional impacts of taxes, that show the largest variation and that most strongly predict views on policies,” Stantcheva writes. I’m director of Tax Analysts’ Tax History Project. Penalties for Pursuing Frivolous Tax Arguments, Page Last Reviewed or Updated: 01-May-2020, Request for Taxpayer Identification Number (TIN) and Certification, Employers engaged in a trade or business who pay compensation, Electronic Federal Tax Payment System (EFTPS), Frivolous Tax Arguments in Collection Due Process Cases, Penalties for Pursuing Frivolous Tax Arguments, Treasury Inspector General for Tax Administration, The Truth About Frivolous Tax Arguments Introduction. Published by the National Bureau of Economic Research, the paper seeks to establish what people know and how they feel about two high-profile components of the federal tax system: individual income taxes and the estate tax. First, knowing how people make up their minds can shed light on how they sometimes come to change their minds. ), Generally speaking, Stantcheva finds ideas about fairness to be stubborn things, resistant to change. In order to come up with your tax bill, your tax office multiplies the tax rate by the assessed value. However, he says an unequal system might actually benefit the disadvantaged more than an economically egalitarian one. For the time being, however, I think Stantcheva is on to something important: Changing hearts and minds is hard, and doing it successfully requires more than simply providing new information to misinformed voters. 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. It’s also a sad rejection of its more distant past, when economists took the lead in debating issues of fairness and equity in all their nonquantifiable mushiness. A virtue ethicist would be likely to view tax avoidance with disfavour. I’ll return to that quasi-abdication of moral responsibility in a bit. You’ve read one of your four complimentary articles for this month. So, if your property is assessed at $300,000 and your local government sets your tax … Is it legitimate to pursue equality through taxation? 498 (2011) (quoting Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. But the partisan divide was large. 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). And at least one of her findings seems sure to frustrate tax experts, who have a penchant for trying to convince others about the best, most efficient, and fairest way to organize the nation’s revenue system: When it comes to shaping opinions about taxation, concepts of fairness are pivotal — and concepts of fairness are hard to change.