Is the Ability to Pay Principle Ethically Bankrupt?

  • Robert W. McGee

Abstract

The cost-benefit approach takes as its premise the view that people should pay taxes based on the benefits they receive from government. If you receive benefits, you should pay for them. This approach seems fair, since any other alternative would be to charge people for the costs of government on some basis other than benefit. Some people would pay more than what they get in services while others would pay less. Those who pay more are exploited, while those who pay less are parasites.

Keywords

Income Expense Gasoline Nash Rosen 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

NOTES

  1. 1.
    The benefit principle is discussed in many piaces in the public finance literature. See Liam Murphy and Thomas Nagel, The Myth of Ownership: Taxes and Justice. Oxford: Oxford University Press, 2002, pp. 16–19; Richard A. Musgrave, The Theory of Public Finance. New York: McGraw-Hill, 1959, pp. 61-89; Richard A. Musgrave and Peggy B. Musgrave, Public Finance in Theory and Practice, second edition, New York: McGraw-Hill, 1976, pp. 211-215; James M. Buchanan and Marilyn R. Flowers, The Public Finances. Homewood, IL: Richard D. Irwin, 4th edition, 1975, pp. 183-187; Michael L Mariow, Public Finance: Theory and Practice. Orlando: The Dryden Press, 1995, pp. 416-422.Google Scholar
  2. 2.
    David N. Hyman, Public Finance: A Contemporary Application of Theory to Policy, 6th edition. Orlando: Dryden Press, 1999, p. 663. Adain Smith’s first Canon of taxation was that individuals should contribute “as nearly as possible in proportion to their respective abilities.” Adam Smith, The Wealth of Nations 310 (1776; 1937), as quoted in John Cullis and Philip Jones, Public Finance and Public Choice, second edition, Oxford: Oxford University Press, 1998, p. 244. Rosen defines ability to pay as the “Capacity to pay a tax, which may be measured by income, consumption, or wealth.” Harvey S. Rosen, Public Finance, 5th edition. Irwin/McGraw-Hill, 1999, p. 529.Google Scholar
  3. 3.
    For discussions of the ability to pay principle, see Liain Murphy and Thomas Nagel, The Myth of Ownership: Taxes and Justice. Oxford: Oxford University Press, 2002, pp. 20–30; Richard A. Musgrave, The Theory of Public Finance. New York: McGraw-Hill, 1959, pp. 90-115; Richard A. Musgrave and Peggy B. Musgrave, Public Finance in Theory and Practice, second edition, New York: McGraw-Hill, 1976, pp. 215-222; James M. Buchanan, Public Finance in Democratic Process: Fiscal Institutions and Individual Choice. Chapel Hill: University of North Carolina Press, 1967, pp. 157-158; James M. Buchanan and Marilyn R. Flowers, The Public Finances, Homewood, IL: Richard D. Irwin, 4th edition, 1975, pp. 97-100, 233-234; Michael L Marlow, Public Finance: Theory and Practice. Orlando: The Dryden Press, 1995, pp. 422-425.CrossRefGoogle Scholar
  4. 4.
    Richard A. Posner, Economic Analysis of Law, 5th edition, New York: Aspen Law & Business, 1998, p. 547. Posner’s Chapter 16: Income Inequalities, Distributive Justice, and Poverty 497-521 completely destroys the notion that the ability to pay concept can be justified on marginal utility grounds. For an exposition of the now discarded theory that total utility can be increased if the rich nations would give money to poor nations, see Ruben P. Mendez, International Public Finance: A New Perspective on Global Relations. Oxford: Oxford University Press, 1992, pp. 104-5.Google Scholar
  5. 5.
    Liam Murphy and Thomas Nagel, The Myth of Ownership: Taxes and Justice. Oxford: Oxford University Press, 2002, p. 24.CrossRefGoogle Scholar
  6. 6.
    Mill, Bentham and the other classical utilitarians take this position, although it is not the only position they take. There are many variations of utilitarianism, almost as many variations are there are utilitarian philosophers. For various approaches to utilitarianism, see John Stuart Mill, Utilitarianism, On Liberty, Essay on Bentham. New York: New American Library, 1962; Douglas G. Long, Bentham on Liberty: Jeremy Bentham’s Idea of Liberty in Relation to His Utilitarianism. Toronto: University of Toronto, 1976; Christopher Biffle and Julius J. Jackson, A Guided Tour of John Stuart Mill’s Utilitarianism. New York: McGraw-Hill, 1992; J.J.C. Smart and Bernard Williams, Utilitarianism — For and Against. Cambridge: Cambridge University Press, 1973; Amartya Sen, Utilitarianism and Beyond. Cambridge: Cambridge University Press, 1982; Geoffrey Scarre, Utilitarianism. London and New York: Routledge, 1996; Jeremy Bentham, The Principles of Morals and Legislation. Amherst, NY: Prometheus Books, 1988; Richard B. Brandt, Morality, Utilitarianism, and Rights. Cambridge and New York: Cambridge University Press, 1992. James A. Yunker, In Defense of Utilitarianism: An Economist’s Viewpoint, Review of Social Economy 44(1): 57-79 (April 1986). Robert E. Goodin, Utilitarianism as a Public Philosophy. Cambridge: Cambridge University Press, 1995. For an explanation of Mill’s utilitarianism, see Roger Crisp, Mill on Utilitarianism. London and New York: Routledge, 1997.Google Scholar
  7. 7.
    William H. Shaw, Contemporary Ethics: Taking Account of Utilitarianism. Oxford: Blackwell, 1999, p. 69, citing Bentham’s The rationale of judicial evidence, specially applied to English practice, in The Works of Jeremy Bentham, vol. 6, ed. J. Bowring (1962), at 238. For a defense of utilitarianism, see Shaw at 68-101. For objections to utilitarianism, see Shaw, 102-132. For refutations of the utilitarian ethic, see Murray N. Rothbard, Man, Economy, and State. Los Angeles: Nash Publishing, 1970, pp. 260-268; Robert W. McGee, The Fatal Flaw in the Methodology of Law & Economics, Commentaries on Law & Economics 1: 209-223 (1997); Robert W. McGee, The Fatal Flaw in NAFTA, GATT and All Other Trade Agreements, Northwestern Journal of International Law & Business 14: 549-565 (1994).Google Scholar
  8. 8.
    Richard B. Brandt, A Theory of the Good and the Right. Buffalo: Prometheus Books, 1979, p. 310, as cited by Shaw, supra, at 235.Google Scholar
  9. 9.
    Richard A. Posner, Economic Analysis of Law, 5th edition, New York: Aspen Law & Business, 1998, p, 546.Google Scholar
  10. 10.
    There are a number of problems with the premise that what is efficient is moral but we will leave discussion of this issue for another day.Google Scholar
  11. 11.
    For examples, see Walter J. Blum and Harry Kalven, Jr., The Uneasy Case for Progressive Taxation. Chicago: University of Chicago Press, 1953; F.A. Hayek, The Case Against Progressive Income Taxes, The Freeman 229-32 (December 28, 1953).Google Scholar
  12. 12.
    Posner,supra, at 544.Google Scholar
  13. 13.
    Posner, supra, at 545.Google Scholar
  14. 14.
    Posner, supra, at 545-546.Google Scholar
  15. 15.
    Richard A. Epstein,, Simple Rules for a Complex World Cambridge, MA. Harvard University Press, 1995, p. 147.Google Scholar
  16. 16.
    Robert W. McGee, Taxation and Public Finance: A Philosophical and Ethical Approach, Commentaries on the Law of Accounting & Finance 1: 157–240 (1997); Robert W. McGee, Tax Advice for Latvia and Other Similarly Situated Emerging Economies, International Tax & Business Lawyer 13: 223-308 (1996); Robert W. McGee, Principles of Taxation for Emerging Economies: Some Lessons from the U.S. Experience, Dickinson Journal of International Law 12: 29-93 (1993).Google Scholar
  17. 17.
    James L. Payne, Unhappy Returns: The $6Q0-Billion Tax Ripoff, Policy Review 2 1 (Winter 1992).Google Scholar
  18. 18.
    Helmut Schoeck, Envy: A Theory of Social Behavior. New York: Harcourt Brace & World, 1966, pp. 194, 217, 221; Robert Sheaffer, Resentment Against Achievement: Understanding the Assault Upon Ability. Buffalo: Prometheus Books, 1988, pp. 177, 186.Google Scholar
  19. 19.
    Murray N. Rothbard makes this point at 115 in Power and Market: Government and the Economy, Menlo Park, CA: Institute for Humane Studies, 1970.Google Scholar
  20. 20.
    I could have said that utilitarian ethics totally ignores “individual” rights but there is no need to include the word “individual” when speaking about rights since individual rights are the only kind of rights that exist. There is no such thing as group rights.Google Scholar
  21. 21.
    For discussions of this point, see R.G. Frey, editor, Utility and Rights. Minneapolis: University of Minnesota Press, 1984; Parta Dasgupta, Utilitarianism, information and Rights, in Amartya Sen and Bernard Williams, editors, Utilitarianism and Beyond. Cambridge: Cambridge University Press, 1999, pp. 199-218.Google Scholar
  22. 22.
    This view permeates Kant’s work. For examples, see Immanuel Kant, The Critique of Pure Reason. Great Books of the Western World, Vol. 42. Chicago: Encyclopedia Britannica, 1952, pp. 1–250; Immanuel Kant, Fundamental Principles of the Metaphysics of Morals, Great Books of the Western World, Vol. 42. Chicago: Encyclopedia Britannica, 1952, pp. 251-287; Immanuel Kant, The Critique of Practical Reason. Great Books of the Western World, Vol. 42. Chicago: Encyclopedia Britannica, 1952, pp. 289-361; Immanuel Kant, Preface and Introduction to the Metaphysical Elements of Ethics, Great Books of the Western World, Vol. 42. Chicago: Encyclopedia Britannica, 1952, pp. 363-379; Immanuel Kant, General Introduction to the Metaphysics of Morals, Great Books of the Western World, Vol. 42. Chicago: Encyclopedia Britannica, 1952, pp. 381-394; Immanuel Kant, The Critique of Judgment, Great Books of the Western World, Vol. 42. Chicago: Encyclopedia Britannica, 1952, pp.459-613. If you don’t want to go through all this reading, which is uniformly heavy, a good abbreviated introduction to Kant’s thought may be found in Immanuel Kant, Ethical Philosophy, James W. Ellington, translator, Indianapolis and Cambridge: Hackett Publishing Company, 1983. For a good intellectual biography that is more pleasant reading than the original, see Ernst Cassirer, Kant’s Life and Thought. New Haven and London: Yale University Press, 198LGoogle Scholar
  23. 23.
    She expresses her views on this subject in novel form in Atlas Shrugged. New York: New American Library, 1957.Google Scholar
  24. 24.
    Ayn Rand, Textbook on Americanism, pamphlet, p. 10, as cited by Harry Binswanger, editor, The Ayn Rand Lexicon: Objectivism from A to Z. New York: New American Library, 1986, p. 519.Google Scholar
  25. 25.
    Ayn Rand, The Virtue of Selfishness. New York: New American Library, 1964, p. 91.Google Scholar
  26. 26.
    We will leave for another day a discussion of whether any tax can be just, since all taxes seemingly violate the right to property. However, this topic has already been discussed elsewhere. For examples, see Robert W. McGee, Is Tax Evasion Unethical? University of Kansas Law Review 42: 411–435 (Winter 1994); Robert W. McGee, Should Accountants be Punished for Aiding and Abetting Tax Evasion? Journal of Accounting, Ethics & Public Policy 1: 16-44 (Winter 1998); Waiter Block, The Justification for Taxation in the Economics Literature, Canadian Public Administration/Administration Publique du Canada 36: 225-262 (Summer/Été 1993), 225-262, revised and reprinted in The Ethics of Tax Evasion (Robert W. McGee, ed. 1998), at 36-88.Google Scholar
  27. 27.
    Karl Marx, Critique of the Gotha Program (1875). The original wording was “Jeder nach seinen Fähigkeiten, jedem nach seinen Bedürfnissen.” Louis Blanc, the French socialist, said basically the same thing in 1848. George Seldes, The Great Thoughts. New York: Ballantine Books, 1985, p. 274.Google Scholar
  28. 28.
    The excise tax on gasoline is an example of the application of the benefit principle. Those who use roads pay a gasoline tax, which is supposed to cover the cost of maintaining the roads. However, not all excise taxes are tied in to benefits received. For example, if the amount of excise tax charged for gasoline is five or ten times the cost of maintaining the roads, it ceases to be a tax that is tied in to benefits. Some excise taxes, like those on alcohol and tobacco, are punitive in nature. Such punitive taxes have no place in a society where government is supposed to be the servant rather than the master. For a discussion of the abuse of excise taxes, see William F. Shughart, II, editor, Taxing Choice: The Predatory Politics of Fiscal Discrimination. New Brunswick, NJ and London: Transaction Books, 1997.Google Scholar
  29. 29.
    There are problems with both of these approaches. There is no way to objectively determine what someone’s ability to pay is, so it must be decided arbitrarily. And there is no way to determine how much benefit someone receives from government services that are made available even if few people want them, since the price of such services is determined by bureaucratic fiat rather than through voluntary exchange.Google Scholar
  30. 30.
    Thomas Cooley, Constitutional Limitations 613 (5th ed. 1883), as quoted in Richard A. Epstein, Principles for a Free Society: Reconciling Individual Liberty with the Common Good. Perseus Books, 1998, p. 129.Google Scholar
  31. 31.
    For more on the concept of a maximum tax, see Robert W. McGee, The Case for a Maximum Tax: A Look at Some Legal, Economic and Ethical Issues, Journal of Accounting, Ethics & Public Policy 1: 294–299 (Spring 1998). 32 U.S. v. Helmsley, 733 F.Supp. 600, 941 F.2d 71 (2nd Cir. 1991).Google Scholar
  32. 33.
    Ross Perot, during one of the televised U.S. presidential debates in October, 1992, announced that he has paid $1 billion in taxes over the years. One must wonder how the federal government could possibly provide him with $1 billion in services. It seems unlikely that he could get his moneysworth even if the government provided him with a large home, free clothing and ten meals a day. But he makes too much money to even qualify for welfare, so he is not able to get food or housing from the government.Google Scholar

Copyright information

© Springer Science+Business Media New York 2004

Authors and Affiliations

  • Robert W. McGee
    • 1
  1. 1.Andreas School of BusinessBarry UniversityMiami ShoresUSA

Personalised recommendations