Abstract
This chapter argues that calculating taxation on an hourly average basis is an ethical requirement. In order to reach this conclusion it first presents an argument that tax policies should be guided by the requirements of distributive justice. The chapter takes an ecumenical position on distributive justice, merely showing that most prominent approaches to justice would support a taxation system with two broad features. The first is that the system would be progressive in nature and thereby provide transfers from the economically fortunate to the less fortunate. The second feature is that the system would retain economic incentives and thereby encourage an effective and efficient economy. These two requirements are commonly considered in opposition to one another, and so proposals that deliver both of these would be attractive in terms of all the approaches to distributive justice set out. A recently proposed form of tax calculation—hourly averaging—is presented and in the final two sections. This is shown to be attractive for its progressivity and for providing economic incentives.
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Notes
- 1.
It is not controversial to claim that there is a trade-off between these two (Okun 1975).
- 2.
This point covers many approaches used in discussions and analysis of taxation, such as the ability to pay principle, the contribution principle, and notions of horizontal and vertical equity. It also covers libertarian self-ownership rights-based approaches to distributive justice mentioned in the following section. All of these views fall foul of the problem that they utilise a free-market baseline for comparison which is unduly favourable to those who do well in a free market setting. This has been labelled by Nagel and Murphy as an unfortunate and unwarranted “everyday libertarianism” (Murphy and Nagel 2002, pp. 31–38). The distributive justice approach would include all distributive and policy options on the table and give no preliminary advantage to any one outcome over any others.
- 3.
Such a view would be held by many followers of Marx as well as anarchist communists.
- 4.
- 5.
One set of thinkers agrees with Rawls and his followers that justice should only look at resources (Dworkin 1981; Rakowski 1991; Bamford 2014). Others believe that welfare should be the focus, or a complex of resources and welfare (Arneson 1989; Cohen 1989). Further proposals that might that would reach similar broad conclusions about tax policy from a background of envy-free egalitarianism and economic analysis are those of Marc Fleurbaey (Fleurbaey 2008) and Serge Kolm (Kolm 2005). Another relevant work .
- 6.
The advantage of Dworkin’s hypothetical insurance approach is that it fully specifies how much compensation people should receive—up to a maximum of returning the individual’s resources to that of the other members of society. In many cases this level of compensation would be a poor insurance choice and so people in the hypothetical insurance veil of ignorance would not choose this. As people are asked what insurance they would choose in a hypothetical pre-luck (or ex ante) position of equality the outcome after compensatory insurance payments from the fortunate to the less fortunate is both egalitarian and justified to all members of society. It is for this reason that I find Dworkin’s resource egalitarian approach the most attractive approach to distributive justice.
- 7.
So, if someone is capable of earning a very high amount but earns the average wage they would pay more in tax than someone who earns the average wage that they would be expected to earn (see also White 1999). This is a form of endowment tax, which therefore differs from the proposal I will present in the next part of this chapter. I am sceptical of the equity of endowment taxes as they place higher demands on some people than others. Nevertheless, I include this as an example of a relevant theory here as it would be instantiated by the hourly averaging proposal if it were deemed practically or morally unacceptable to determine how capable everyone is in comparison to others. I therefore believe that the hourly averaging would be a good “second-best” institutionalisation of White’s principles.
- 8.
One complication to this story arises where there are “utility monsters,” people who always get more utility than others from resources (Nozick 1974). If such people exist and can be identified, then utilitarian tax policy would want to maximise the amount of resources to such people. I do not think this case is troubling to my argument as I do not believe it would be possible to reliably identify such utility monsters. Furthermore, I doubt whether the picture is plausible that there are people who can simply turn resources into utility as most people tend to have a wider range of concerns that would restrict their ability to simply make this conversion, including concern for how well people around them are doing.
- 9.
These might be provided for people who are disabled, have caring responsibilities, or are involuntarily unemployed and undertake whatever work or training is requested of them. They may also be given to students on registered education courses.
- 10.
Alternatively, the taxpayer’s net hourly average income could be multiplied by their hour credits in order to indicate the amount of net lifetime income that they should have received. This net amount could be compared to the net income they have received in order to calculate the amount of tax that is currently due.
- 11.
The best lifetime tax rate graph would be a smooth curve that rises steeply at first and then more and more gradually towards 99 % for those with huge hourly averages.
- 12.
Jack’s tax rate on this single transaction might be considered to be 40 %, but this is only an indication that he had previously been paying a much lower tax rate (in fact, zero).
- 13.
- 14.
The closest proposal to this of which I am aware is that presented by economist Edmund S. Phelps (Phelps 1997). Phelps’ proposal, however, is restricted to full time workers only and is paid through employers rather than tax rebates to individuals.
- 15.
Assuming that income is withheld at source and that people do not have their hour credits reduced for any reason.
- 16.
I have proposed a hybrid comprehensive income and consumption tax base, under the name of “Comprehensive Acquired Income” (Bamford 2014b, pp. 84–97).
- 17.
Not all additional hours would lead to an additional hour credit. In order to reduce the scope for fraud, and to discourage over-working, I would propose a maximum number of hour credits that each taxpayer could receive in a given period (Bamford 2014b, pp. 44–45).
- 18.
- 19.
We might put it that hourly averaging is a tax on excessive leisure. Leisure is an area that has been little discussed in political philosophy, but exceptions are Rawls (1996, 1988); and Rose (forthcoming).
- 20.
I would be less certain to say that more hours of work would be done than under laissez faire but it is possible that it would be.
- 21.
Another concern is that hourly averaging would greatly increase the amount of bureaucracy in society and that this will be a drag on productivity. I would accept that managers and firms would need to devote some of their time and resources to interacting with the tax authority, but I would contend that the amounts involved would be minimal. Using IT systems it should be readily possible to transfer the relevant information very efficiently from one computer system to another. After all, firms either expect their staff to work a significant number of hours in order to meet their responsibilities or they already monitor their staff closely and pay them only for the number of hours they have worked.
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Bamford, D. (2015). Ethical Taxation: Progressivity, Efficiency and Hourly Averaging. In: Gaisbauer, H., Schweiger, G., Sedmak, C. (eds) Philosophical Explorations of Justice and Taxation. Ius Gentium: Comparative Perspectives on Law and Justice, vol 40. Springer, Cham. https://doi.org/10.1007/978-3-319-13458-1_9
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