There is no tax system that, from every point of view and in every particular case, will always look just. That’s true for two reasons. First, our intuitions about justice are quite varied and what looks just from one point of view might not look just from another. Second, what looks just in the micro case might be impossible to create in an large, complex market based economy. Thus we can’t define rules of justice for a political economy as a whole that looks only at the individual case and does not take into account the broad consequences of one or another set of political and social arrangements.
The Income Tax: Some Cases
Take, for example, the income tax, which everyone thinks is the most progressive and fairest tax. (I agree with that assessment.) Does the application of our current income tax always lead to lead to after tax incomes in individual cases that seem fair? Let me describe five single people who earn 100,000 and, having the same deductions, pay the same amount in income tax.
A: a lawyer who writes appellate briefs. He has cerebral palsy. Getting through law school was an immense undertaking. And because his cerebral palsy makes it difficult for him to produce text quickly, he has to bill half of what another lawyer with his same skills would bill. So he works 60 hours a week to earn that 100,000.
B: An heir to a computer fortune who lives on the 100,000 interest from his trust fund. B spends most of his day drinking, taking drugs and watching porn.
C: A mathematical / computer whiz who works as a system designer / consultant two days a week for twenty hours for an actuarial firm. His mathematical talents are so great and rare that he can earn 100,000 a year doing this.
D: A salesman who works 40 hours a week selling copying machines to small businesses.
E: A doctor who works 30 hours a week at a health clinic.
Is it just that A, B, C, D and E all receive the same after tax income? Looking at income and taxation in such a granular way, I’d have to say no. When we look at individual earnings, we in this political culture intuitively use two criteria, among others, to determine what people should earn. In my academic work I call one “contribution” and the other “sacrifice.” Someone who contributes more to others might justifiably be said to deserve more income. Or someone who works harder than others might be said to deserve more income.
Contribution and Sacrifice as Criteria for Fair Income Distribution
But the two criteria, contribution and sacrifice, can each be defined in different ways and, also, can lead to different conclusions about particular cases.
Start with contribution: What justifies person C receiving such a high income for relatively little work? Presumably it is the economic contribution his talents enable him to make. Is it, however, fair that he receives such a high after tax income from such little work when A works so much harder and receives the same income? In addition, we can take a broader view of contribution and think that someone who, for example, works very hard in a public health care clinic is making a much greater contribution to others even if that work is not rewarded in the market they way it would be in a private practice.
Sacrifice as a criteria leads to other judgments: A works much harder and under much more difficult circumstances than B-E. Perhaps she deserves a higher income and should be taxed less than the others.
B does very poorly on both sacrifice and contribution. From both points of view, his high income is unjust and he should be taxed more.
Can We Devise a Tax System With These Two Criteria In Mind?
You could try to develop a theory of economic justice based on these two criteria, and perhaps others as well, and use them to develop a tax system that lead to just outcomes. The political philosopher William Galston tried to do this. And his serious but unbelievably complicated theory showed why the effort makes no sense. We could create a government agency evaluate the sacrifice and contribution of each individual so as to set their post-tax income in a sensible way. But in a large mass market based, incredibly complicated and interconnected economy, that would be an enormously complicated undertaking. It would not be worth the time and effort to carry it out even assuming that it could be done fairly. And that is very dubious.
In addition, so long as we believe that freedom requires a free market in labor—that is so long as we think the government should not tell people what work to do and for how long—trying to set wages that meet the criteria of sacrifice and contribution would interfere with the way prices create the labor market incentives that lead people into the jobs where their narrow economic contributions are greatest.
And I haven’t begun to talk about needs, which is another criteria we might use to adjust post-tax incomes in a in a perfectly fair political community. Is it fair that people with greater medical problems or who take care of family members for whom they don’t receive tax exemptions the same taxes as others?
Procedural Justice vs. Pure Justice
The moral of this story is that when we think about economic justice in our kind of political economy, it makes no sense to evaluate broad tax rules just in terms of single cases. We set those broad rules in ways that we hope will lead, on average, to outcomes that get us closer to what we think justice demands. It is these rules—what John Rawls calls the basic structure of society that are in question. And then we just live with the particular cases that don’t seem to work quite right because we have no way of correcting most of them in a way that won’t create further problems.
So we rely on what Rawls calls procedural justice. We set up the rules that we think are going to work out right and then whatever the outcome with those rules, we call them fair provided they apply to everyone in the same way. Rawls’s difference principles, which he suggests is the most appropriate standard of justice basically says that divergences from equal incomes have to be justified by the contributions of those divergences to the worst off or—this is my amendation—the common good. A tax system the aims to meet the difference principle standard will reward some, no doubt changing, mixture of sacrifice and contribution while also taking into account the incentives needs to create efficient labor markets. But we simply ignore those details because there is no plausible way to determine how important each factor is or should be and no way to structure a market based political economy that responds only to one or the other of these criteria.
Of course, we can tinker a little bit and try to improve the system in various ways with programs that remove particular inequities. But by and large we don’t worry about details and don’t reject a tax system when we can find a particular case in which the after tax incomes of two people doesn’t seem quite right.
The Justification for Procedural Justice
What’s the justification for sacrificing pure justice for procedural justice? It’s all the benefits of living in a large market economy—that liberal market economies create what an incredibly high standard of living liberal market economies for many and create the economic growth that take the edges off political conflict and has made it possible for the first time in human history to live under a relatively peaceful stable governments and to live without unfree labor, that is serfdom or slavery.
Procedural Justice and the LVT
And that’s the fundamental reason I keep insisting that Sam is looking at a Land Value Tax in the wrong way. If an LVT works to create the public goods we want—growing tax revenues, incentives for using land efficiently; a reduction in urban sprawl—and if it is fair in general terms, by placing more of a burden on the rich and less on the poor, then a few cases that strike us as intuitively unfair do not discredit the policy any more than a few cases that strike us as intuitively unfair do not discredit the income tax or the property tax.
And that is especially true when those few cases are relatively unlikely. And let me remind you that, at no point has Sam ever given us any reason to think that his favorite horror story is going to happen often. In fact, I’ve pointed to the obvious fact that people tend not to build very expensive residences in neighborhoods with low property values.
On the other hand, Dan’s qualms about LVT are at the right level of discussion. He’s looking at individual cases not to ask whether this or that one is just but, rather, as examples of the general effects of the LVT. I think I’ve answered those qualms but, again, there is room for serious debate.
Even some systematic fairness won’t discredit a tax system if it is part of a larger structure that aims to compensate for that unfairness. For example, neither a property tax nor a LVT take into account family size. Is it fair that two families can pay the same property tax when on consists of two adults and the second consists of two adults and five kids. W live with that inequity by trying to use exemption in the income tax to compensate for it.
Further Reading
I’ve tried in this lengthy post to explain how I think it makes sense to think about justice and taxation.. But this is still a very quick and dirty presentation of a complicated argument. I’ve tried to spell it out in an as yet unpublished paper I wrote about ten years ago entitled, Desert, Entitlement and Justice. It’s a conference paper written for people deep in the philosophical literature on distribute justice and thus is a pretty dense thirty pages. But if anyone is really interested in how contemporary political philosophers think about these issues, it’s available on my website at: http://www.stier.net/writing/dej.pdf