The Moral Basis for Taxation

Nat O'Connor: Do progressive economists have a shared belief in the moral basis for taxation?

Let me start by referencing Daniel J. Mitchell's 2006 paper "The Moral Case for Tax Havens". (Aside: Ireland is mentioned on page 9, in glowing terms).

I am taking certain core arguments in this paper to be reasonably representative of free market philosophy.

Let me go further, and agree with Mitchell in two respects:
Firstly, I agree that tax havens do have a role in helping people who live in brutal non-democratic regimes. (This deals with a lot of second half of his paper, which isn't really relevant to this post, except to note that I argue taxation does not have the same moral basis in non-democracies. That's quite important, because a lot of the philosophy on the moral basis for taxation referred to by free market proponents occurred centuries ago, before democratisation and is limited by that).
Secondly, he notes on page 27 that "Opponents of tax havens do make one compelling argument. It is unfair, they say, for some people to avoid taxes while others are stuck carrying the load. For those who believe that the law should apply equally to all, this is an important issue."

I understand this to mean that we need the rule of law (including tax law), which should be non-discriminatory. I'll come back to this point of agreement.

My main problem with Mitchell's paper is illustrated in the first paragraph on page 4, "The first responsibility of any government is to protect the safety of its citizens, either from external aggression or domestic crime. The second responsibility is to provide an environment conducive to economic growth and opportunity. There are several steps needed to create that environment, including property rights, the rule-of-law, and a stable currency. One of the main conditions for prosperity, though, is a tax system that rewards – or at least does not unduly discourage – productive behavior."

The paper combines two strands of argument. Firstly, there is the belief that low tax policies lay the basis for economic growth, which in turn leads to widespread prosperity and better social outcomes. In other words, it is an argument that the results of free market economics justify its structure and the lack of regulation. I think this argument has been somewhat refuted by the global crisis, not least the assumption that 'growth' at all costs is a good thing. But more specifically, it fails to convince that low taxes are a causal factor in this growth. At the same time, I am equally unconvinced that excessively high taxes will lead to economic prosperity either. So, we are left arguing about tax rates but not its moral basis, so I leave that for other posts.

I see the second strand in Mitchell's argument as a political philosophy that characterises a certain set of personal rights as inviolable by the state. The state's primary role is presented as the protection of these rights (specifically property rights) through the rule of law. And taxation is then justified only by the provision of services, primarily the protection of citizens and their rights, and then provision of an environment conducive to economic activity. This circumscribes the role of taxation.

Didn't I start by agreeing that we need the rule of law? Yes I did. And I can also agree that human rights are universal and indivisible, including property rights. But I don't agree that all these rights are inviolable, and that's the essential difference in getting to the moral basis of taxation.

If rights, including the right to property, are not inviolable, who gets to decide on their limits? Surely the state has to be constrained or it could abuse its power?

I take the fundamental principle here to be political equality. That is, each person affected by the decision has equal participation rights in making the decision, even if he/she chooses not to use them.

Hence, all laws and all taxes must be derived from a democratic process (that is, the action of this fundamental principle). It may not be possible to reach consensus, so decisions may be made by voting (or through elected representatives) but democracy requires that all participants accept the results of the process. Hence, we must have the rule of law, including tax law.

Hence, if tax results from a democratic process, then it can be for whatever purposes are agreed by the participants, above and beyond protecting citizens' rights. Participants can define the 'common good' or 'public interest' as they see fit.


To move to the specifics of the Irish case. The moral basis for taxation is premised on the argument that, at some point in time, Ireland became a democratic state.

We can argue about when that defining moment was; for example was it the first election conducted with universal suffrage or the first time an election resulted in the peaceful replacement of one party in government by another, etc.

You can of course argue that Ireland is not in fact a democratic state at all, but I am going to simply reject that argument and argue that Ireland is now undeniably democratic, hence our taxes are based on the principle of political equality in determining their level and purpose.

This is reflected in the Constitution:

Preamble: "We, the people of Éire ... Do hereby adopt, enact, and give to ourselves this Constitution."

Article 1: "The Irish nation hereby affirms its inalienable, indefeasible, and sovereign right to choose its own form of Government, to determine its relations with other nations, and to develop its life, political, economic and cultural, in accordance with its own genius and traditions."

Article 5: "Ireland is a sovereign, independent, democratic state."

Article 6.1 "All powers of government, legislative, executive and judicial, derive, under God, from the people, whose right it is to designate the rulers of the State and, in final appeal, to decide all questions of national policy, according to the requirements of the common good."

Articles 21 and 22 of Bunreacht na hÉireann describe Money Bills and clearly imply that the Dáil can impose taxation.

The Constitution gives specific mention to property rights in Article 43.1 1° "The State acknowledges that man, in virtue of his rational being, has the natural right, antecedent to positive law, to the private ownership of external goods." and 2° "The State accordingly guarantees to pass no law attempting to abolish the right of private ownership or the general right to transfer, bequeath, and inherit property." However, this right is qualified by Article 43.2 1° "The State recognises, however, that the exercise of the rights mentioned in the foregoing provisions of this Article ought, in civil society, to be regulated by the principles of social justice." and 2° "The State, accordingly, may as occasion requires delimit by law the exercise of the said rights with a view to reconciling their exercise with the exigencies of the common good."

In other words, we the people can define "the common good" through a democratic process and then proceed to levy taxes to fund public policies to achieve that end.

Guest post by Niall Douglas: Tax Sin, Never Good

Following TASC's Autumn Conference in October, we have been carrying an occasional series of guest posts from some of the attendees. This is the second post by Niall Douglas.
Niall Douglas: One of the major themes of the recent TASC conference was the need for a stimulus plan for Ireland – and it got my mind thinking about what shape such a stimulus plan should take. Encouraged by the comments to my last post which suggests there is an interest in progressive conservative economics, I thought I might try applying one of their most important mantras to the current poorly state of the Irish Economy and see what happens. That mantra is simple: Tax Sin, Never Good.

To quickly explain, orthodox economics holds that taxation – which it views as an evil made necessary only by the requirement to provide public goods – ought to be placed upon goods and services which are the most “inelastic” (which is the economic jargon for “insensitivity of consumption to price changes”). In other words, the reason why petrol, cigarettes, alcohol, new cars (in the form of VRT) and your income are much more heavily taxed than other items is because Economists have determined that people are most likely to continue to buy these items no matter their cost: one therefore biases taxation towards necessities rather than luxuries. Because the maximisation of production of stuff is the single most important thing in Neo-Classical Economics, taxes placed on inelastic goods are inferred to have the least effect on output maximisation, and therefore on employment maximisation because it requires people to make all that stuff.

That sounds sensible, but note firstly how amoral such a proposal is: on the one hand most people would agree that petrol, cigarettes and alcohol ought to be heavily taxed because none of these are good for you or society at large, so economic theory and morality coincide. However there is considerably less moral alignment with the taxation of work: how can it be morally right that living off of Jobseeker’s Allowance is not taxed, yet the first step into legal work is immediately taxed at 5-10% (this the total cost to society i.e. it includes Employer’s PRSI) after which it rises rapidly to consume some twenty-five percent of the average worker’s earnings before all taxes? This sends a signal to society that, rationally speaking, working and self-reliance is to be punished and that indolence and helplessness is to be rewarded. It is this viewpoint of that situation, and the logical reaction to it, which underpins the anger felt towards the welfare system in general by conservative parts of society.

The second logical problem with inelastic taxation is this: inelastic goods are, by their very definition, the most important to society and therefore they are the most utilised by society i.e. they are the fundamental building blocks of an economy from which economies of scale are most possible. Maximising total output, as orthodox Economics would do, assumes the equivalence of a single luxury product costing €100 and one hundred necessities costing €1. When viewed like this rather than through output maximisation, any emphasis of taxation upon necessities such as a person’s income is not only morally unjust but also the most economically retarding and taxation regressive of any economic policy because it severely punishes the most impoverished and weakest in our society. Therefore, the social conservative with a strong moral conscience has particular issue with taxation as the damnation of the poorest and weakest – which if you are religious as say most Americans are, means that taxation is sinful.

It is upon these two fundamental arguments that progressive conservative economic policy rests: perhaps you now understand why the right is always so concerned with income tax cuts and why progressive conservatives such as Milton Friedman were so adamant that taxation of income hurts the poor the most – which of course is in direct and total contradiction to the position of the left which regards progressive income taxation as a tool to help reign in the growing inequalities in income. The truth is that both positions have merit, and the economics effects of both positions are amply covered even in the reduced worldview of the Neo-Classical Economic model.

In future posts I shall identify a set of good and bad behaviours – as according to the economic literature – in the Irish Economy and then proceed to investigate what might happen should we eliminate all taxation on the good things and make up the shortfall by taxing bad things. I shall try wherever possible to provide figures and links to research for my proposals. In so doing, I hope to lay out one possible revenue-neutral stimulus plan for Ireland in as much detail as I am able. I look forward to reading your comments.

Towards a Progressive Economics: papers and podcasts

We are slowly uploading the papers presented to the TASC Autumn Conference, Towards a Progressive Economics, starting with Paula Clancy's opening remarks, and Dr. John Barry's presentation on 'Greening the Economy and Greening Economics'.  Click here for an abstract of Professor Terrence McDonough's presentation, and here to read the presentation by Dr. Mary Murphy to the panel on 'Deflation vs. economic development'. Michael Taft's presentation to the same panel is also now available for download. Pauline Conroy's presentation to the panel on banking is available here.

In addition to the conference videos, you can click here for a podcast of John Barry's presentation to the morning session, and here for a podcast of Fintan O'Toole's paper (thanks to Donagh of ILR for these).

Terry McDonough: Towards a progressive economics

Following the TASC Autumn Conference on Saturday, Terry McDonough talked to Donagh Brennan of Irish Left Review to give his take on 'progressive economics', elaborating on the paper he presented to the conference. Click here to listen to the podcast.

Guest post by Dieter Benecke: Qualitative growth - progressive economics and inclusive development

Dieter Benecke: Last Saturday TASC organised a conference entitled “Towards a Progressive Economics”.

The speakers focussed mainly on the reasons for the Irish crisis and recession. As the conference title indicates, the aim was to chart a path forward for Ireland. This is in line with former Irish President, Mary Robinson, who – during the Michael Collins commemoration – talked about the need to reclaim a “vision for the future of Ireland”.

After analysing the past and taking measures to overcome the crisis, other countries are more focussed on addressing the future. An interesting approach was taken by the German government together with the Indian government, inviting representatives from all Asian countries to discuss the possibilities of a more qualitative growth.

The considerable macroeconomic growth in Asia during recent years has tended to be an exclusive development: the rich people benefited much more than the poorer part of the population. The outcomes of this conference (September 2009), in which 270 representatives from the government, business, trade union, scientific and civil society sectors in 13 Asian and five European countries – as well as several international organizations - participated, could be of interest for the discussion in Ireland as well.

In general terms, it was agreed that the neo-liberal approach is inadequate for a progressive and inclusive development process.
Free competition - without concentration tendencies - is necessary in non-systemic markets in order to maintain economic dynamics. In systemic markets, however, stringent control and regulation are required.

The primary outcomes of the two-day deliberations were as follows:

1. Economic growth is a necessary, but not sufficient, condition for inclusive development and progressive economics.

2. A certain inequality is natural and can even be considered as a push for more achievement; however, excessive social inequality poses a danger to political stability, and reduces the access to development opportunities.
3. Economic and social development factors must work together, and must be combined with ecological measures. The current crisis can be viewed as an opportunity to link these factors in a better way.

4. Exclusive growth is an obstacle to international economic cooperation. Long-term FDI seeks profit and security. Social conflict militates against an investment-friendly environment.

5. A progressive economics need a public-private dialogue, as well as the participation of civil society organizations.

6. Government must invest primarily in education, infrastructure, health service and other public goods. Incentives for innovation in technology and ecology are of high priority.

7. A progressive economics is based on a model of Social and Ecological Market Economy and its fundamental principles
- individual responsibility,
- social solidarity,
- subsidiary action by the State.

8. Inclusive development can be achieved by
- responsible competition and ethically acceptable behaviour on the part of business,
- regulation of systemic markets,
- structural policy aiming towards diversification of production and services,
- social protection and prevention of social weakness,
- environmental protection through recycling, alternative and renewable energy, energy saving and emission reduction.

9. Inclusive development requires efficient and non-corrupt institutions working in the interests of stakeholders, more than in the interests of the shareholders.

10. Leading public positions must be occupied by persons appointed because of their expertise and ability, rather than party affiliation or personal contacts.

The 270 participants in the New Delhi conference would probably be delighted to exchange views with those in Ireland seeking to create a new vision. TASC must stay in touch with international thinking and experiences.
Dr. Dieter Benecke is a German economic consultant based in Dublin and former President of Inter Nationes in Bonn.

Guest post by Niall Douglas: Progressive pluralist economics or left-wing economics?

During the next few days we will be putting up a number of guest posts arising from the TASC Autumn Conference - Towards a Progressive Economics - held over the weekend. The first critique is by Niall Douglas.

Niall Douglas: I attended the TASC Autumn Conference - Towards a Progressive Economics - and managed to make it through from start to finish, despite having woken at 3.30am in order to travel to Dublin. I found it most illuminating and I offer my thanks to its organisers and speakers for a most welcome discourse.

Much was spoken of the failings of Neo-Classical Economics and Neo-Liberal Economics – the two not being the same, I might add, as the former is the (supposedly) apolitical collection of theories and models and the latter is the avowedly political application of those theories. Suggestions for improvement seemed to me to centre around the need for the reintroduction of pluralism within economic discussion, and the transfer of power from “the markets” to political control which could be more rationally and humanely directed than the necessarily chaotic, and often psychopathically selfish, free market. This, it seemed to be implied, is the only form of “progressive” that there is.

This is simply untrue: there are progressives on the right just as much as there are on the left – indeed, throughout human history one finds that which side is the more progressive alternates across the decades. From inspecting the last century, I would personally say that both left and right-wing politics have enacted just as much progressive legislation across the world as the other.Human rights and welfare have without doubt been improved dramatically since the 19th century, and both sides can take credit.

Most people know of the great suffering presently endured by far too many in our planet, and anyone humane feels angered and motivated to create change by their plight. What makes a person politically progressive is a profound and deep-seated belief that it IS possible to improve the state of our world and that the Thomas Malthuses of our world are wrong (I should hasten to mention that Rev. Malthus did not believe that humankind was doomed, and ascribing such negativity to the man does him an historical injustice).

Every progressive is united by a burning desire to enact social and environmental justice, to bring equality of both opportunity and outcome to all, to provide a better world for our succeeding generations and to instil freedom and democracy at every level of our world.

If TASC is a think-tank dedicated to progress, then in my opinion it needs to bring the progressive right into its debate as well – most especially its economic debate. Much of last weekend’s conference had (in my opinion) those speaking to the already converted, which is surely nothing like as progressive as advocating progressive ways ahead to a politically mixed audience.

For example, the progressive religious right in the USA are just as appalled with the events of recent years as anyone on the left: they have been instrumental in withdrawing the support of the religious right away from the Republican Party which so failed them. Without their efforts – and their progressive ideas – Obama would never have become elected, nor would he be expending so much political capital on bringing the Republican Party on board with his legislation in health, climate change and so many others still to come.

One cannot but conclude that the progressive right are instrumental to the near-term future of this world.

A good start would be to add a few voices of the progressive right to this blog – I don’t doubt that the comments will wonder who I would suggest, so I will freely admit that I have no idea as I am profoundly ignorant of the current political scene: I do look forward to seeing who commentators might suggest. I am sure that, by providing a counterfoil to left-wing arguments, the quality of the overall debate would become greatly improved and intellectually more robust: so much so that government, business and the markets would find it hard to ignore the arguments for progressive change.

In the end, pluralism is a double-edged sword: if you truly believe in it, you have to let it cut you from time to time, and in so doing hopefully become better and stronger than before.

Niall Douglas holds degrees in Business Information Systems, Economics and Management and Software Engineering. He is a member of the international Toxic Textbooks movement

TASC Autumn Conference: wrap-up

The TASC Autumn Conference - Towards a Progressive Economics - held on Saturday proved very successful. Thanks to everyone who spoke, to all attendees (including many who had travelled long distances to be with us on the day) and, in particular, to Donagh Brennan of Irish Left Review who masterminded the U-streaming and live-blogging.

The Q&A sessions proved far too short to accomodate all the questions submitted from the hall and online - so apologies to anyone whose questions weren't reached. We'll know better next time.

Videos and papers will be uploaded here, on the main TASC website and to the dedicated conference site during the week. In the meantime, there's extensive coverage of the event in the Irish Times (click on side links for related stories). You can also hear a pre-conference podcast interview with Nat O'Connor and Michael Taft here.

Towards a Progressive Economics - update

The dedicated conference website for the TASC Autumn Conference - Towards a Progressive Economics - is now live, and papers will be uploaded to the site next week.

The vagaries of technology permitting, we hope to U-Stream and liveblog the conference here on PE; questions to the speakers will also be accepted online (you can use the liveblog facility, or the comment thread below it).

Towards a Progressive Economics - last few places at TASC Autumn Conference

There are now only a few places remaining for TASC's Autumn Conference, Towards a Progressive Economics, on Saturday, October 10th, in DCU. If you wish to attend, please e-mail TASC to register as soon as possible. The full conference programme is available for download here, and an access map of the venue is available here.

When registering to attend, please also state whether you will require parking on the day. Car park exit tickets will be available at the registration desk for €3; however, we have to buy these in advance and need to have a final idea of the quantity required before Thursday.

Any places remaining on the day will be allocated on a first-come, first-served basis.

Towards a Progressive Economics: Programme now available for download

The line-up of speakers for the TASC Autumn Conference - Towards a Progressive Economics - has been finalised and now includes David Begg and Fintan O'Toole. The full programme is available for download here.

There are still limited places available; please e-mail contact@tascnet.ie to register.  Remaining places will be allocated on a first-come, first-served basis.

Tea and coffee will be available, and a light lunch will be provided. Registration is free, but we would welcome a small donation on the day to help defray costs.

TASC economics conference

Towards a Progressive Economics, DCU School of Business, Saturday October 10th: click here for more information and registration details.