There is seldom a shortage of politicians and pundits calling for more people to pay their “fair share” of taxes. But how is one to determine what everybody’s fair share should be?
The blunt answer is that there is no non-arbitrary way to determine a “fair” amount of taxes, because unlike market exchange, taxes are not voluntary.
Many justify taxes as “the price we pay for a civilized society.” Leaving the internal contradictions of that statement aside, we can evaluate what makes for a fair price in the market and arrive at the conclusion that there is no such thing as a fair share of taxes.
For centuries, ethicists and economists grappled with the concept of a “fair price” for a good or service. Despite their best efforts throughout the centuries to establish the notion of goods having a universal, objective value that should determine its price, subjective value theorists won the day.
The seeds of the subjective theory of value were planted as far back as ancient Greece, with the philosopher Xenophon’s important insights into what makes an item valuable. Xenophon suggested there is no inherent value in items but rather the value of an object is derived from the “utility” – or pleasure – the user gets from it. He used the example of a flute to illustrate:
“…the same thing are wealth (valuable) and not wealth (not valuable), according as one understands or does not understand how to use them. A flute, for example, is wealth to one who is competent to play it, but to an incompetent person it is no better than useless stones.”
Clearly, there can be no objective value in objects when the same object can be valued far greater or less by different individuals.
With no objective value inherent in goods, what basis can we use to determine what the “fair price” for a good should be?
As Murray Rothbard wrote in his 1970 book Power and Market: Government and the Economy, even the most objective of ethicists arrived at the conclusion that “the only possible objective criterion for the just price is the market price” mutually and voluntarily agreed to by buyer and seller.
Indeed, we can find St. Thomas Aquinas of the late Spanish Scholastics arrive at this conclusion in the second part of his 13th century work, Summa Theologiae.
As summed up in this March 2019 Public Discourse article, “For Thomas, then, the market price is the just price if the buyer and seller are honest and not trying to take advantage of each other.”
With the theory of what makes for a fair, or just, price settled, Rothbard questioned “If the search for the just price has virtually ended in the pages of economic works, why does the quest for a ‘just tax’ continue with unabated vigor? Why do economists, severely scientific in their volumes, suddenly become ad hoc ethicists when the question of taxation is raised?”
Later in his work, Rothbard provided an answer of sorts to his own question: “The ‘just price’ was abandoned in favor of the market price. Can the ‘just tax’ be abandoned in favor of the market tax? Clearly not, for on the market there is no taxation, and therefore no tax can be established that will duplicate market patterns.”
In short, when it comes to taxes, voluntary agreement is removed. Government imposes its arbitrarily chosen tax rates by threat of force. Because mutual consent is removed from the transaction, there can be no such thing as a “fair share” of taxes.
But shouldn’t the rich pay more in taxes, because they can afford to?
The ‘ability to pay’ rationale fails on several counts. Asking higher-income people to pay more in taxes fails to take into consideration each person’s accumulated wealth. Surely, a person earning $50,000 per year’s ability to pay taxes is far less compared to a person earning the same income but with a million more dollars in accumulated savings.
Moreover, a pay stub tells us nothing about the financial obligations of each individual. One may have major medical bills or ongoing expenses for caring for an elderly parent, while another may have no such obligations. Even at the same income level, these two have a vastly different “ability to pay.”
And let’s not forget that progressive taxation serves as a de facto penalty for more highly productive activities, which serves to disincentivize such activity. The resulting economic stagnation will harm the poor and low-skilled people the most.
The notion of “tax fairness” is crude political demagoguing with no moral foundation. It is simply a cloak for power-hungry rulers to conceal their desire to arbitrarily determine what portion of their justly-earned property citizens shall be allowed to keep.
Bradley Thomas is creator of the website Erasethestate.com, and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.
Follow him on twitter: Bradley Thomas @erasestate