Justice, Equality and Taxation

Abstract

Taxation needs justification. Therefore, it is subject to arguments about justice and equality. In terms of normative ethics, justice takes the lead. The article is divided into four parts: I. Formal Relations of Justice. II. Material Principles of Justice. III. Consequences for the Justice of Taxation. IV. International/Global Justice of Taxation. The justice of the contribution/taxation depends first on the distribution of goods made possible by the particular community in which taxation takes place. Fundamental for any ethics is the principle of normative individualism/humanism: Only individuals can be the ultimate point of reference of moral obligations and hence the justificatory source of ethics, politics and law. In order to balance conflicting interests the “principle of the relative dependence of individual concerns on others” is proposed: The more the origins or the realization of the concerns or the interests of a morally considerable individual depend on others or a community, the more the respective concerns and interests have to be relativized in the process of deliberation, and the more the community may decide according to its common goals. This principle is applied to the justice of taxation. As a basic principle of taxation, a limited equivalence/benefit-principle is defended. The ability principle can only provide some additional considerations. Income can be taxed more extensively than consumption and wealth. A progressive income tax is defended.

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1 Introduction

Taxation needs justification. How could such a justification be achieved? Apart from considerations of efficiency, two notions are ethically crucial to achieve this aim of justification: justice and equality.¹ However, one has to notice from the start a fundamental difference between these two notions. From a descriptive perspective, the qualification of humans and actions as equal or non-equal is basic. However, from a normative perspective, justice is more important and takes the lead. This has consequences regarding our search for a justification of taxation, because justification is a normative aim. So in order to avoid the is-ought-fallacy one has to link the question of taxation to the question of justice.

We believe that human beings and their actions and institutions can be just or unjust. Justice, therefore, is a property of the human character (a virtue) and a property of human actions and institutions, that is, collective human actions or rules, including the intended or unintended results of these actions and institutions. What, then, distinguishes justice from other properties of the human character like prudence, modesty or bravery, and other properties of human actions and institutions like rationality or efficiency? The main distinguishing feature is this: these listed properties are understandable entirely without relations to others. In situations which concern only oneself, one can be modest, prudent, brave, rational and efficient but not just—at least, not in the ordinary sense of the concept. One can be modest, prudent or brave while facing an earthquake. Moreover, we can act rationally or efficiently in repairing a bike. By contrast, justice in the ordinary sense of the concept—Plato, Aristotle, Thomas Aquinas and others had already noticed it (Plato 1990a, p. 12e6–8, 1990b, p. 507a10; Aristotle 1984, V 3, p. 1129a25 ff.; V, 15, 1138a4 ff.; Thomas Aquinas 1987, II-II, qu. 57, 1, 58, 2)—is always related to others, that is, to other entities which deserve moral and ethical consideration. Therefore, justice is always a virtue or an action, including its results in relation to others, and is thus a relational property. Institutions when they carry out collective actions or when they employ rules imply such a relational property to others.

Besides this necessary relation to another person, justice always comprises two other relational features: (1) Justice is always related to some object, that is virtue or action. (2) Justice is always related to some scheme of evaluation/measurement. So justice is at least triple-relative. The same holds for all human actions which are ruled by justice, e.g. taxation. We have in any taxation system an entity, which taxes another entity, for a cause (income, consumption, wealth), according to some measurement. Because of this relational character, one has to start every discussion of justice with considerations about the different types of justice-relations.

2 Formal Relations of Justice

For the relations of justice, see von der Pfordten (2008).

1. The most basic type of justice-relation is the type of relation between two human beings, e.g. between human being A and human being B. The most fundamental requirement of justice is that A should develop character traits and perform actions which are just in relation to B and vice versa. Previously Aristotle identified this basic relation of justice (Aristotle 1984, p. 1130b6 ff.). It was later named “iustitia universalis/generalis” (Thomas Aquinas 1987, II-II, qu. 58, 6, 7).

2. Beyond iustitia universalis, we can distinguish some more specific relations of justice: The two relations between A and B can be related via the ideal of equality, so via a second order relation.

We then get the more specific justice of exchange (1) = iustitia commutativa/inter-subjective justice. One example is when A buys a car from B, is the exchange just?

A more simple visualization is by a double-arrow:

The equity consideration is in this case limited to the pure worth/relation of equal exchange. E.g., it does not matter whether A or B are rich or poor.

3. More complex and decisive for our question concerning the justification of taxation are justice relations if one adds a third relatum/element. There are two fundamentally different possibilities. One could add (1) another individual C or (2) a community of individuals A and B. We will consider the first possibility initially, that is the addition of another individual C:

With the integration of a third relatum C we face an additional problem of interpersonal equality. Is C obliged to treat A and B equally?

The obligation of C to treat A and B equally depends on the status of their relationship. Imagine C is a private participant in an economic exchange. She buys her bread always from baker A and never from baker B. So she treats A and B unequally, but—according to our assumptions—she is not being unjust.

Imagine now C was the mother of A and B. She gives a piece of a cake only to A, but not to B. So she treats A and B unequally and her action is therefore unjust. What is the reason for this different evaluation? As a mother, C has the responsibility for her children, but not for specific bakers, because the family is a community with relations of mutual responsibility. Therefore, the obligation to treat others equally here depends on being responsible for them. In the economic market, the obligation to treat others equally is reduced or—under certain conditions—even abolished.

4. What changes occur when adding a community consisting of A and B? There are two main particularities emerging in this setting. First of all the treatment of A and B has to be principally equal because they are part of a community. The community is obliged to treat all members prima facie equally because they stand in a relation of mutual responsibility to each other.

Secondly, the new type of relation between the community and the human being differs in one main respect from the basic type of relation between two human beings A and B since the relata are different. So non-symmetry arises in these relations even at a structural level. Therefore, we could split the communal relation into two different types of relations: a relation of contribution from a human being to the community (2) and a relation of distribution from the community to a human being (3).

We can identify the relation (2) of the single members to the community. This relation can also be found in Plato. (Plato 1990c, p. 161b5 ff., 1990d p. 370a4, 433a1 ff., 1990e I 127a14 ff.; Aristotle 1984, V 2, p. 1129a33 f.). It was named “iustitia legalis” in the middle ages (Thomas Aquinas 1987, II-II, qu. 58, 6, 9 ad tertium; Thomas Aquinas 1993, p. 293 ff.). More appropriate would be “iustitia contributiva”, or “contributive justice” instead, because not only is obedience towards laws (legal justice) a matter of this relation but also the deliverance of contributions (contributive justice) and acts of legitimisation of the community. The relation of contributive justice is the kernel of our main question, which taxation is just. E.g. are inequalities of income, wealth or consumption decisive? Which form of measurement is justified? A head tax? A proportional tax? A progressive tax?

However, we cannot limit our considerations to this contributional relation because the contribution is only one aspect of the more encompassing view of justice.

The relation (3) of the community to the single member is also mentioned by Plato, (Plato 1990d, p. 433e12 f.), but was first carefully developed by Aristotle (Aristotle 1984, V 5, p. 1130b33 ff.). It was named traditionally “iustitia distributiva” (Thomas Aquinas 1987, II-II, qu. 61, p. 1 ff.; Thomas Aquinas 1993, p. 284 ff.). It comprises the main question about the distribution of tax revenues in order to sustain political projects and redistribute goods.

5. The distinction between the relations of contributive and distributive justice opens up the space for three different meta-questions of equality.

(1) One can ask intrapersonally: do a person’s contributions and her gain from distribution stand in a justified relation? Example, do the taxes and individual gains show an equality relation, e.g. the pensions in a public pension-system and the contributions to this pension-system?

(2) One can ask, for two or more human beings involved, e. g. A and B, but restricted to one type of justice relation (contribution or distribution), that is interpersonally isolating, are the isolated contributions and distributions of different individuals just? This question has two parts: (a) Do A and B contribute justly, in a manner that is prima facie equal? (b) Do A and B get a just share of the distribution that is prima facie equal?

(3) One can finally ask, for two or more human beings involved and for all justice relations (contribution and distribution) that are interpersonally non-isolating, are the joined contributions and distributions of several individuals just, in a manner that is prima facie equal?

6. In one special case, a unification of two of the later relations deserves special structural consideration, if the community directs one action to two members with respect to their basic relation (1). We then get a fourth fundamental type of justice-relation within a community:

This relation (4) could be named corrective or commutative justice (iustitia correctiva vel commutativa). The wider name “iustitia correctiva”, “corrective justice”, is preferable because an exchange does not always take place. This relation comprises the correction of every form of unjust interactions, e.g. in civil law and penal law. It also comprises the correction of historical injustice by the individual members, e.g. through slavery or suppression by private persons or communities. It is not limited to the correction of intended or negligent wrongdoing. It is also not limited to the correction of actions by identifiable members of the community. However, in these cases the distinctions between corrective justice and distributive as well as contributive justice become blurred. In some cases, taxes do not only aim at collecting revenues but also at correcting or limiting private interactions, e.g. the excessive consumption of alcohol, tobacco or fuels.

3 Material Principles of Justice

All four types of relations need some material principle as a complement. However, and importantly, not all relations need the same principle as a complement!

In the literature one finds a lot of material relating to principles of justice: the principle of equality, the maximizing principle of Utilitarianism, the Pareto principle, the difference/maximin principle of Rawls etc. (Rawls 1973; see von der Pfordten 2010, p. 168 ff.). Usually the problem is this, many theories of social justice mainly pay attention to distributional relations, e. g. within Rawls, thereby narrowing the concept of justice. The justice of exchange, of contribution and of correction are seldom covered or at least not covered extensively. It is clear that this is not acceptable. Moreover, it is certainly not justified in a theory of taxation, where contributional justice is at stake.

2. Robert Nozick formulated a fundamental critique of taxation in Anarchy, State and Utopia (Nozick 1974, 161 ff.). He used the basketball-star Wilt Chamberlain as an example and asked, rhetorically, why should the state be allowed to tax the extra 25 cents everybody pays to see Wilt Chamberlain play? Nozick assumes that everybody who pays the 25 cents originally owns the money paid and that the transfer to Wilt Chamberlain is just. Therefore, he can see no justification in taxing Chamberlain’s income.

However, this is not convincing. The taxation of Chamberlain’s income is justified because the community provides some conditions that are necessary for attaining this income: public roads, stadiums, police forces, a law-system, education, etc. Without all these partly publicly financed goods it would be impossible for Wilt Chamberlain to become a basketball-star and earn the money. However, we have to formulate this concept of justice more carefully.

3. A first step is to realize that in most cases the distribution (of money obtained from taxes) by the state is factually impossible without any contributions (from taxpayers). Today, the main source of revenue is taxation. Therefore, there is a factual link between distribution and contribution. This factual link leads to a first partial and negative justification of taxation. If the political project, which is financed by taxation, is in a fundamental way unjustified, then the taxation to finance this project cannot be justified. Therefore, a criminal regime cannot claim that its taxation is justified. Everybody can ethically refuse to pay taxes to sustain this regime. This rationale was invoked when Henry David Thoreau refused to pay taxes as long as the practice of slavery was not abolished by the American state (Thoreau 1993, pp. 1–18).

However, the positive relation does not hold. The justification for the distribution is not sufficient to justify the contribution and one needs additional reasons instead.

The next step is to ask which material principle can possibly justify taxation. For an answer, I will refer to other work (von der Pfordten 2010, p. 23 ff., 2012, pp. 449–471.). Fundamental for any ethics is the principle of normative individualism/humanism which states that only individuals can be the ultimate point of reference for moral obligations and hence the justificatory source of ethics, politics and law. Collective entities such as nations, peoples, societies, communities, clans, families, communicative groups or eco-systems, etc. cannot fulfil this function. ²

After accepting normative individualism, one has to ask what the decisive normative qualities of the individuals are. Here we see a continuum between purely corporal strivings, corporally based needs, mostly mental needs and purely mental aims. These four normative qualities can be summarized under the label of concerns/interests.

This leads to a first conclusion with respect to the factual link between contributions and distributions and the first partial justification founded upon this link. Projects of the political community are partially justified if and only if there is (1) some sort of assumed general constitutional agreement of all members to finance common projects/distributions and (2) a majority agreement (or their representatives agree) on the specific projects which are undertaken.

4. Beyond this, what can the main principle to reach a just system of contributions be? A solution is offered by the following “principle of the relative dependence of individual concerns on others”, which has been explained and defended on another occasion (See: von der Pfordten 2010, p. 210 ff., 2012, pp. 449–471):

The more the origins or the realization of the concerns or the interests of a morally considerable individual depend on others or a community, the more the respective concerns and interests have to be relativized in the process of deliberation, and the more the community may decide according to its common goals.

What does it mean to say that the origins or the realization of one’s concerns depend on others or a community? There may be two reasons for such a dependency: (1) historically and retrospectively, a certain shared practice serves as a necessary condition for the development of a certain concern, e.g., the emergence of a certain sport such as jogging as a condition for the desire to go jogging; (2) instrumentally and prospectively, a certain practice can only be realized with others or within a particular community with its particular institutions, e.g., the interest to communicate with others or to make use of certain infrastructural facilities.

Ideally, the relative dependence of individual concerns on others takes the form of a continuum. At the one end, there are concerns that depend on others only to a minor degree or not at all. At best, they may be supported by others, such as life, physical integrity, thinking, etc. These interests can be realised all over the world, in all cultures and societies. For them, in particular, the principle of equality holds. The interest not to be tortured, for instance, combines the interest in one’s own physical integrity and the interest in self-determination—both of which are not dependent on any community, thus increasing their strong dependency on the individual. For that reason, the interest not to be tortured must remain unaffected by relativising deliberations as much as possible (Cf. von der Pfordten 2006, pp. 149–172).

At the other end of the continuum, there are concerns which are almost totally dependent upon others or the social community, such as, e. g., an interest in communicating with others, working together with others, visiting public institutions, such as museums and in making use of the public transport system, and one’s interest in social aid, a common economy, in natural resources, such as oil or coal, and in sustaining the community. For these concerns—all strongly dependent on a community—the maximizing principle notably holds because each concern’s dependency on the community justifies the common decision. Single individuals have, in these cases, no legitimization to veto the aim of collective maximization. In between the two extremes there is, e.g., an interest in being treated with respect, in being informed about facts of personal relevance, interests in employment, freedom of speech and the use of one’s own goods, etc. In these cases, it is much more difficult to choose a single principle. Several factors are decisive for the choice, like the relative dependence of the interests of the individuals in respect to the community and the importance for the bearer of that particular principle, but also the content of the interests. Many principles are candidates for such application. Moreover, even a combination of principles is possible. What might be a justification of the principle of the relative dependence of individual concerns on others?

The ethical solution of conflicts by norms is an act of collective decision-making, that is, an act of collectivization in respect to the individual person, who has to limit his or her own decisions or life-plans (i.e., his or her freedom) in order to ensure a reconciliation of interests in the community. It is justified that the individual should accept this collectivization in order to ensure peaceful co-existence, and more so when these decisions or life-plans are not his or her own but are dependent on the community.

4 Consequences for the Justice of Taxation

1. What now are the consequences for the justice of taxation? We have to ask which taxes are justified according to these considerations. I will limit my discussion here to three main types of taxes: income tax, wealth tax and consumption tax.

At the beginning, it is helpful to notice a factual relation. These three types of tax occur in the following temporal order for the normal actions of a taxpayer:

How do the interests related to these three types of human actions depend on the community?

The most dependent on the community is one’s interest concerning income (in-relation), because only the specific conditions of a specific community (e.g. industrialized, good infrastructure, good educational system, police and law-system, safe, peaceful, well-ordered) allow a certain amount of income above a baseline of primitive economy in a state of nature. This applies to all types of income, and also to capital gains. Without all the institutions of a developed society or state, the income could only be that of a farmer, fisherman or hunter having his subsistence wage. This approximately equal income of a subsistence farmer, fisherman or hunter is the measure that provides the baseline for comparison. The justifying relation between income above this baseline and the support by the institutions of a developed society can be called the equivalence principle. This principle will shortly be discussed and defended in a limited and special form, leading to a progressive income tax.

The interest related to consumption (out-relation) depends, to a lesser degree, on a specific community, e.g. how somebody could spend his money, buy goods, rent an apartment. Additionally consumption is made by free choice out of the wealth which belongs to each individual. Therefore, the taxation of consumption is less justified than the taxation of income.

The interest to keep one’s wealth as assets depends least of all on the specific community, namely only insofar as the stability of a certain currency has to be guaranteed and the police/law protects material goods like houses, cars etc. If somebody has acquired his wealth legally, using money which was already subject to income-tax, it is prima facie his free decision to save it, spent it, or transfer it to other people or another country.

Therefore, we get the following order of justified taxation: (1) Income, (2) consumption, and (3) wealth. Following these considerations, the result is that the state is most justified in taxing income, to a lesser degree consumption and to the least degree wealth.

2. A general justification for taxation is given by the equivalence principle mentioned. This principle is old (See Black 2010, p. 36 f.). It can be traced back to antiquity. Its basic idea is that there must be some equivalence/proportionality between contribution and distribution.³ Aristotle mentioned that the contribution of a singular individual is decisive for the distribution (Aristotle 1984, p. 1131b30 f.). Moreover, in the Bible in the 2nd Epistle to the Thessalonians (3, 10) we find the bold prescription: “Anyone unwilling to work should not eat.” Thomas Aquinas justified a fair payment to the sovereign for services rendered (Thomas Aquinas 1987, II-II, 66, 8). For John Locke property is justified by labour (Locke 1991, § 28 ff.). The state is legally allowed to tax because of its protection of property (Locke 1991, § 140). Some newer authors have named this principle of equivalence—unfortunately, as I think—the “benefit principle.” (Weston 1903, p. 160 ff.; Murphy and Nagel 2002, p. 16 ff.).

What are the arguments for the equivalence principle? Even in modern political communities, the relationship between the individual and the community preserves the original character of the basic justice-relation of justice of exchange. Contributions/taxes are generally justified because of the agreed distributions. However, without this link to the distributions by the community there seems to be no reason why the state should be allowed to coerce individuals to pay taxes.

Some newer authors have criticized the equivalence/benefit-principle. For Murphy and Nagel the equivalence/benefit-principle suffers from a fundamental problem (Murphy and Nagel 2002, p. 18) in that it does not suggest what the tax rate or rates should be because it does not give guidance as to the appropriate level of government expenditure. It takes expenditure as given and allocates taxes in proportion to the resulting benefit. Murphy/Nagel make the point that the issue of the nature and extent of government services does itself raise questions of justice. “Once we acknowledge those questions, it is clear that the benefit principle cannot serve as a standard of tax justice.” However, this is a non sequitur. It is true, that the question of distribution raises questions of justice. However, this does not hinder the application of the equivalence principle as one principle to link distributions and contributions. The distribution of welfare to persons with no or low income is justified by an additional principle of solidarity which holds in respect of all members of close communities. The existence and realization of such an additional principle of solidarity does not exclude the application of the principle of equivalence towards those who have significant income. Some other arguments of Liam/Murphy against the equivalence-principle will be discussed later on.

3. Another proposed principle is the ability principle (See Murphy and Nagel 2002, p. 20 ff.). We find it in an early limited form in Plato: “Everyone should do/contribute his own in the polis.” (Plato 1990d, p. 433a.). It was promoted by the Utilitarians to maximize utility (See Black 2010, p. 37). Karl Marx has given it another formulation and linked it with a need-principle of distribution: “From each according to his ability, to each according to his need.” (Marx 1974, p. 21). Stephen Weston defended the principle at the beginning of twentieth century (Weston 1903, p. 171 ff.). In our days, the Social Democratic Party in Germany has given the principle a more metaphoric formulation, saying that strong shoulders can/should carry more than weak ones. Applied to taxation one could formulate the principle like this: “He who is able shall pay taxes! He who is more able shall pay more taxes.”

How should one evaluate the ability-principle? The ability-principle is strictly limited to the human property of ability but a description is not a justification. If somebody can do something, this does not imply that he should do it. Such a conclusion would be a clear example of the is-ought-fallacy. ‘Ought to’ implies ‘can’, but not vice versa. Therefore, the ability principle is no more than another additional factual condition. It lacks the necessary normativity.

One could conclude that all three principles, the equivalence principle, the principle of solidarity and the ability principle, are necessary to provide a justification for taxation, but they stand in a relation of asymmetry to each other. The ability principle only limits taxation. One has to be able to pay taxes in order to be obliged to pay taxes. The principle of solidarity secures a tax-free minimum and gives a claim for welfare. There must be a tax-free minimum of income and some welfare-support, because one needs a minimum wage and living together in a community produces an obligation for solidarity. However, the general normative justification of taxation can neither result from the ability principle nor from the principle of solidarity. It results from the equivalence principle. The whole existence of government is only justified because it provides certain distributions of goods.

4. A more fundamental consideration is this. The ability principle is a concretization of some sort of normative collectivism. If somebody can contribute, he should do and do so as much as he can. Therefore, the collective efficiency is the main purpose. Beyond the ability, there is no limit for contributions. The equivalence principle takes instead the individual as the decisive last focal point of justification. It relies on normative individualism. Because the individual gets some distribution from the community, he or she has to contribute. As we saw, normative individualism is preferable. Only individuals can be the last source of justification. Therefore, they must be its last focal point. Consequently, the equivalence principle is normatively basic. The ability principle adds only some limiting conditions.

5. What can the measurement of taxation be? There are three main possibilities: (1) Strict absolute equality, that is taxation per capita/head, the so-called poll tax. (2) Proportionality/Linearity, the so-called flat tax. (3) Progression, the so-called progressive-tax.

Today, most countries have a progressive tax system with respect to income tax. E.g. the highest percentage of income tax in the EU averages now at 38.8 %. Some Eastern European Countries have a flat tax, e.g. Bulgaria, Romania, Lithuania, Estonia and Latvia.

What is justified as the rate of income tax, a poll tax, a flat tax or a progressive tax? The equivalence principle gives the following answer which justifies a progressive system of income tax. The higher the income progressively is, the more the specific conditions of a community can be assumed to be necessary to achieve this higher income. These conditions are means like roads, infrastructure, educational system, health system, police, law-system etc. but also the relative evaluation of different types of work by specific communities, e.g. an arbitrary higher evaluation of legal, economic or medical advice in comparison to religious, spiritual or philosophical advice in modern western societies. The personal contribution of the individual to attain his or her income is necessary and justifies leaving some amount after taxation. However, the increase of the individual labour effort is limited. An individual cannot work more than 12, 14 or 16 h a day permanently. He/she cannot invent more than a limited number of problem solutions and give personal advice only to a limited amount of persons. On the contrary, the external conditions to gain a higher income can rise without personal limitations until a general limit of the nation or nowadays even the world is reached. An enterprise could use public roads with 10, 100, 1000, 10,000 or even 100,000 trucks. It can employ 10, 100, 1000, 10,000 or even 100,000 labourers who acquired their skills at least partially through a public system of education. A progressive scheme of income tax is justified because, at least typically with higher incomes, the possible personal contribution decreases and the contribution of others and a fortiori state and society, and therefore the dependence on others, increases.⁴

6. Now it is necessary to come back to the critique of Liam Murphy and Thomas Nagel. They have suggested five arguments against the equivalence/benefit principle of taxation, which will be criticized in what follows (Murphy and Nagel 2002, p. 17 ff.):

(1) It sustains a flat tax.

However, this is not the case as we saw before. It sustains a progressive tax, because with increasing income the part contributed by the society rises progressively.

(2) It does not give us guidance as to what the tax rate should be, because it does not give us guidance as to the appropriate level of government expenditure.

Yes, but this is the case for all contribution principles, because the expenditure of the government is subject to questions of distribution. The expenditure is not only an overall decision of ethics/justice, but also to some extent a contingent political decision of every individual community. Therefore, we have to do both. We have to reason ethically about the appropriate level of expenditure and we have to take up the political decisions of every individual community in order to decide how high the tax rate has to be in each particular case. However, this does not destroy the general justification of the equivalence principle for a progressive tax-scheme.

(3) The poor benefit greatly from the government via welfare/health services. This would justify their contribution/payment, which would be, according to Murphy/Nagel, pointless.

However, the very poor are exempted from contributions because of the ability principle. Welfare/health services is a special issue which is justified by the different principle of humanitarian solidarity. Therefore, they have to be left out of consideration with regard to the equivalence/benefit-principle. So welfare/health services for the poor do not hinder the justification of taxation in general by reference to the equivalence principle, i.e. by reference to gains via public projects and general distributional advantages.

(4) The equivalence/benefit principle assumes that the initial pre-tax distribution is just and at the same time changes this distribution. This is said to be self-contradictory. However, there is no assumption by the equivalence/benefit principle that the pre-tax distribution is just. There is only the assumption of an income without society and government and the necessity of contributions to make possible collective projects. There might be some additional reflections about the justice or injustice of the initial pre-tax distributions which might lead to some additional taxation, e.g. according to luck egalitarianism (Kok-Chor Tan 2012). Nevertheless, these additional reflections do not hinder the application of the equivalence principle to justify a basic and general taxation of the income.

(5) The equivalence/benefit principle is not an overall distributive principle.

Yes, that is true, but the equivalence principle as a principle for the justification of taxation mainly addresses contributive justice, not the distinct relation of distributive justice. An overall distributive principle is moreover firstly questionable and secondly—if one holds such a principle—it can be added to the results of the application of the equivalence principle. There is no need to assume that the equivalence principle uniquely determines all justice relations. On the contrary it can be supplemented by additional considerations, e.g.—as we saw—the principle of solidarity, the principle of ability, luck egalitarianism or other political and distributional reasons (See for some: Wingert 2012).

7. Another counter argument was formulated by Verbeck (See his contribution in this volume). Do all people not have the same opportunities to use public resources like roads or bridges? Yes, but it is the actually taken opportunities, not the mere opportunities alone, which are decisive. Moreover, the people with higher income, e.g. Bill Gates with Microsoft, use the opportunities not only theoretically, but also in reality progressively more.

Compare these two examples. We do not pay for the mere opportunity to go to the cinema. Only if we actually take that opportunity and buy a ticket, do we have to pay. So mostly we only have to pay if we transfer the mere opportunity into reality. Alternatively, think of the water or electricity supply. We pay for the amount of water or electricity we use.

8. What about other forms of income tax? Income tax on capital should be equally high as income tax on labour because capital gains are only possible under the same conditions as income through labour. Huge differences between the income tax of individuals and corporations are not justified. Nevertheless, additional reasons of competition and efficiency are allowed. In this respect, there exists a justice gap in many countries today.

How should other forms of income be evaluated?

For inheritance/gift (See general: Gaisbauer et al. 2013), the initial contribution of the benefitted person is nil or much smaller in comparison to the investment of labour and capital. Therefore, the tax can be in principle higher than the normal income tax on labour-income and capital-income. However, there is also a counter-argument: the freedom of the testator must be respected, a person who has often abstained from higher consumption and saved his fortune not the least to sustain his widow, children and grandchildren. This intention has to be taken into account to a certain degree. This is the reason why it does not seem to be justified to tax inheritance/gifts higher than labour- and capital-income. Additionally the inherited property was already, as income, subject to income tax. Therefore, inheritance tax does tax the property for a second time. The consequence must be a lower inheritance tax which can nevertheless be progressive in respect of the amount of the heritage and the distance of family-relations.⁵

For a lottery prize there is normally a very small contribution from the prize-winner, so the tax can be higher than the normal income tax on labour- and capital-income.

9. How high should the maximum income tax be? In Austria, the highest rate is currently 50 %, in Germany 47.5 %. The maximum rate of income tax depends firstly on the amount of agreed distribution which has to be produced by the tax. The decision for a large or a small government is a political decision but within certain limits also an ethical one. Labour is already a contribution to the community. Therefore, it is clear that an income tax on labour of 70, 80 or 90 % will not only cause practical problems, but does not honour individual achievement. The same holds for such a tax rate on capital income.

10. Here, we do not see that the necessary contribution of the community to the individual interest (see the “principle of the relative dependence of individual concerns on others” above) is higher if higher amounts of money are spent. Therefore, the prima facie measurement of taxation should be an absolute figure that is a flat tax which exists in nearly all countries. There seems to be no reason for differentiation. Only according to secondary political aims or projects can a differentiation be justified, e.g. a price support on the vital goods for daily life like bread etc., on books, on ecological behaviour etc.

11. Concerning wealth tax there is only a small taxation justified to compensate the protection by sustaining a stable currency and a police- and law-system because the individual interests in private property depend only to a low degree on the actual community.

12. A last question which has to be discussed is this: what about the consequences of taxation? Do they play a role? This is mainly a question about the role of efficiency. These consequences, such as efficiency, provide only one aspect of the overall consideration of justice, but not the most decisive one. Therefore it is not justified to structure the tax system only or mainly according to consequences/efficiency-considerations, e. g. in order to sustain savings and investments and suppress positional externalities, as proposed by Robert Frank (Frank 1999, 2007, 2008, 2011, see the contribution of Xavier Landes in this volume). Therefore, it is from a justice perspective not justified to e.g. punish the free decision of individuals for consumption instead of savings by a massive progressive consumer tax.

5 International and Global Justice of Taxation

1. In reality, we do not only have one but a multitude of communities. These communities can be related to each other in two fundamentally different ways: (1) in simple relations like individuals or (2) as part of a greater community. The difference leads to the iterative application of either the justice relation (1) between mere individuals (relation 5) or the justice relations (1)–(4) between individuals and communities (relations 6–8), that is a horizontal (level 1) or vertical extension (level 2).

The justice relation (5) between communities resembles the simple justice-relation (1) between individuals.

Theoretically, the building of communities can happen without limitation. Therefore, we get a cascade of communities. This already takes place in singular political communities. We see the gradual development of an increasingly complicated multi-layered system of private communities (clubs, enterprises), municipalities, regional and federal governments. In addition, it takes place on the international and global level.

2. This picture is quite complicated already. However, it is becoming even more complicated because the different levels are permeable. The individuals can have a direct relation to the first-order community as well as to the second- or higher order communities (level 3). Moreover, the same is true for communities in relation to higher order communities. For only two levels, we get a picture like this:

The second-order community can correct all first-order relata in respect of their justice-relations directly (relation 11).

Both significant phenomena—iteration and permeability—lead to an important consequence for the material question of justice. The material question has second- and higher order dimensions. We not only have to ask if we ought and how to build up the first order relations (1)–(4), but also if we ought and how to institutionalize iteration and permeability at the second and higher levels.

2. For the international/global justice of taxation, the decisive question is this: has the transition from level 1 (horizontally extended model) to level 2 (vertically extended model) and further on to level 3 (further extended model) already taken place? Equally, and normatively: should we promote such a transition? The answer to the latter question depends on the distributional side, not on the contributional side. That is, we must ask whether we should transfer national political decisions to an international level.

For the issue of taxation/contribution, the level that is actually reached is decisive. The principle which applies is this: the more the transition from level 1 to level 2 and further on to level 3 has taken place, the greater becomes the need to apply the normative justice principles of taxation discussed in the previous sections to international taxation.