On Philosophy

May 28, 2006

The Philosophy of Taxation

Filed under: General Philosophy,The Philosophy of — Peter @ 9:24 pm

I’m not here to argue big government / small government with you. What I am here to talk about is how we can justify taxation as right, while, for example, a protection racket run by the mafia is wrong.

Unlike protection rackets taxation gives us something in return, namely public goods which benefit all citizens. Studies have shown that it is unlikely for people to organize to provide public goods by themselves (see the free rider problem), and thus it is in everyone’s best interests for the government to provide these goods and to support them with mandatory taxation. The protection racket of course promises to give citizens something as well, namely safety, but because the problem is created by the people collecting the money the whole enterprise cannot be defended in this way. (Of course a second group would be able to justify collecting money in order to stop the mafia; generally we call them the police.)

A more interesting question is “how should we tax people?” Since we all receive basically the same benefits from public goods it might seem reasonable to make us all pat the same tax. After all we both get the same benefit from interstate highways, so why should you have to pay more in taxes simply because you earn more? Such taxation systems have been proposed before for just these reasons. However uneven taxation based on income can be justified in two ways.

One way to justify it is to hold that the rich are in debt to the poor (ethically, not financially), and thus progressive taxation (taxing the rich more) is justified because it helps correct this moral problem. Of course not many people feel that the rich actually owe the poor anything, so it is rare to hear progressive taxes justified in this way.

Alternatively we can suppose that money is worth more or less to different people; that the rich value money less and the poor value it more. Thus progressive taxation “costs” everyone about the same even though they pay different amounts of money. We could then defend this practice on grounds of fairness, since the real costs to everyone are the same as the value they receive (since being rich doesn’t diminish your appreciation of roads or national defense). Or if we were utilitarians we might say that the total happiness of society is maximized by progressive taxation, since a flat tax would make the rich only a little happier but would make the poor much less happy.

Of course just because we can justify progressive taxation doesn’t mean that we can justify all aspects of real tax systems. One flaw in the US tax system is the IRS. Of course we need to have someone to collect the taxes, but the size and cost of maintaining the IRS is excessively large because of the unnecessarily complicated tax system. It seems reasonable to suppose that society would be better off with a simpler tax system which would allow us to have a smaller IRS and pay less in taxes.

A more significant flaw in the US tax system is the uneven distribution of government spending. Ideally since we all pay the same taxes to the government we should all get the same benefits from those taxes. Unfortunately government spending doesn’t work that way and some states receive more from government spending than they paid and some sates receive less, for example California gets approximately 90 cents back for every dollar last time I checked. The only way to defend this inequality would be to suppose that people living in some states valued money more or less than those living in other states, which seems unlikely.

In conclusion taxes in principle can be justified, but since reality is often imperfect no actual tax system, to the best of my knowledge, is perfectly just.


  1. After all we both get the same benefit from interstate highways, so why should you have to pay more in taxes simply because you earn more? Such taxation systems have been proposed before for just these reasons, and are called flat taxes.

    A flat tax is a flat percentage for all people. What you’re describing here sounds more like a single set price for all people. Even a flat tax is “progressive” in the sense that what it charges people based on their income. This is quite unlike normal prices, which (by law in the US today) are not directly connected to the income of the buyer.

    Of course, there are other means for the government to raise money besides income taxes. There are also consumption taxes like VAT, and taxes on assets are possible, like property taxes and car taxes. Also, it’s possible for government to earn money non-coercively by competiting as a business or semi-coercively as a legally mandated monopoly as has been done in numerous fields in the past, such as banking, postal services, highway fees, and electricity (TVA).

    I personally am not overly concerned about unequal distribution of tax revenues. If everyone received about as much benefit from the system as they paid into it, it wouldn’t be necessary to tax people at all. Instead, people could buy the services directly, without governmental compulsion. The entire point of forcing everyone to pay taxes is that some people are going to receive more than they’re paying in, and some people are going to receive less, but since everyone deserves access to the benefits provided by the government and since those benefits are decided on by the collective consensus of the people, it’s OK to redistribute funds in such a manner.

    Comment by Carl — May 28, 2006 @ 10:47 pm

  2. Clarification: A flat tax is the same flat percentage of one’s income for all people.

    Comment by Carl — May 28, 2006 @ 10:48 pm

  3. Yes I guess I was thinking of a flatter than flat tax.

    Taxes on goods make sense when the revenues they raise go to public services only enjoyed by the people who bought those goods, such as gas taxes paying for roads. With any taxation scheme though you should ask what justifies taxing some people instead of others. Why tax people based on property, what justifies it? Do people who own property benefit more from national defense? If you can’t justify charging some people more than others then logically such a tax system is unjust.

    “Instead, people could buy the services directly, without governmental compulsion.”
    The problem is that many services can’t be bought in this way, it’s the free rider problem. For example consider a lighthouse. Even if you don’t pay for the lighthouse you can still benefit from it (the coast guard doesn’t throw a tarp over your boat if you can’t prove that you paid for the lighthouse). Thus few people are motivated to actually pay and no lighthouse gets built. On the other hand the government can tax all boat owners and construct the lighthouse. Private production of services only works where it is possible to exclude people from enjoying those services.

    Comment by Peter — May 28, 2006 @ 11:04 pm

  4. This is wandering off topic, but based on that logic, should we nationalize the music and movie industries, on the theory that internet piracy creates an inescapable free rider problem? If not, why not? Are there any theoretical reasons not to, or just practical ones?

    Comment by Carl — May 29, 2006 @ 12:02 am

  5. Well I don’t want to get into the ethics of file sharing here, although that is a good idea for a future post.

    However from an economic standpoint it doesn’t make much sense to nationalize the movie/music industry primarily because they aren’t public goods, i.e. not everyone benefits from them. It is true that nowadays it is nearly impossible to exclude people from information, which simply means that companies need to charge for other things instead. For example presentation (theatres, concerts), packaging, merchandise, subscription services, ect. For example instead of paying for a band’s music you might pay for access to the band’s site on a monthly basis, which lets you listen to their music for free, participate in online forums, talk to the band, see practice sessions live, ect.

    Clarification: not everyone has to benefit from a public good, just the people you are taxing to support it. In theory only boat owners are taxed to support a lighthouse.

    Comment by Peter — May 29, 2006 @ 12:42 am

  6. One key difference between the mafia protection system and taxes is the principle of “due process”. With a structure of laws, collecting taxes operates within rule and a system argee upon by the people. With the mafia you just get your knees broke.

    Comment by Abyss — May 29, 2006 @ 8:22 am

  7. Returning from my digression and going along with Abyss, I would say that the legitimacy of taxation comes not from the distribution of the money, but from the consensus of the governed. In other words, that we’re a democracy makes it OK that California isn’t getting as much money as some other state, since California has an equal vote on where revenues are sent.

    Comment by Carl — May 29, 2006 @ 8:52 am

  8. Due process doesn’t make things right, it makes them legal, and there is an important difference. For example even if the majority of people voted in a law where the government would sneak into your house at night and cut off your fingers it still wouldn’t be right. The majority doesn’t have special powers that make whatever they want ethical (see for example genocide). Likewise with the uneven distribution of tax revenues, the states that are harmed, like California, vote against it, and the majority of states that benefit if vote for it, and thus the system is perpetuated. If you think that this is somehow beneficial to the nation as a whole, and thus justifiable, I suggest you see my post on utilitarianism.

    Comment by Peter — May 29, 2006 @ 1:37 pm

  9. Do you know how many things I disagree with that are happening in this country that I have to endorse with my money? It’s against my character to support something I don’t agree with, and I do NOT agree with the operations in Iraq. Yet I HAVE to pay the gov’t money to fight something I am against. In turn, I am supporting something I loathe. In my opinion, if you have a government that the people aren’t willing to support on their own free will, that government is invalid.

    Comment by Josh Taylor — June 4, 2006 @ 7:01 pm

  10. Justifying the practice of taxation is independent from justifying how the money is used. It is possible that the taxation is just and the government’s spending of the money is unjust, or that the taxation is unjust and the government’s spending of the money is just, judging one doesn’t commit oneself to judging the other as well.

    Comment by Peter — June 4, 2006 @ 7:16 pm

  11. Your post mainly seems to deal with method of taxation rather than raising arguments for justifying taxation itself. Indeed the only sentence I can find which you ‘justify’ taxation is:

    “Studies have shown that it is unlikely for people to organize to provide public goods by themselves (see the free rider problem), and thus it is in everyone’s best interests for the government to provide these goods and to support them with mandatory taxation. ”

    Where are these studies? Who conducted them? This is merely speculation but I would imagine that the researchers were operating with tax-payer funded money.

    It is absolutely disgusting that pro-taxers think its in everyone’s “best interests” for government to forcibly help themselves to 3 or 4 months of your salary and spend it how they see fit. The fact is, private enterprise provides the public with goods and services far more efficiently and with better quality than government. I believe it is in my best interest to KEEP my first four months salary and spend it how I see fit.

    Ill buy my own private health care, private education, and private transport. I dont want to pay for a highway on the other side of the country that I will never use, I dont want to pay for a diplomat to Lithuania, or for another limousine for a congressman, and I most certainly dont want to pay for yet another government funded study convincing everyone that government needs to intervene more in our lives and make more decisions for us and buy the way we’ll have to raise taxes to pay for it.

    Comment by David — January 4, 2007 @ 9:52 am

  12. *last post should read “by the way we’ll have to raise taxes to pay for it.’


    Comment by David — January 4, 2007 @ 9:53 am

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