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.

Posted in: Taxation • Economics

Tagged with: towards a progressive economics • taxation

Dr Nat O'Connor     @natpolicy

Nat O’Connor is lecturer in social policy in UCD’s School of Social Policy, Social Work and Social Justice and part-time policy specialist at Age Action Ireland. Previously Director of TASC, Nat also led the research team in Dublin’s Homeless Agency.

He has taught politics and social policy since 1999. He has a PhD in Political Science from Trinity College Dublin and a MA in Political Science and Social Policy from the University of Dundee. He is a Fellow of the Higher Education Academy (UK), a member of the National Economic and Social Council (NESC) and chairperson of the Irish Social Policy Association (ISPA). You can find him on LinkedIn (natoconnor) and TwitterX @natpolicy