Before one can tackle a fair sharing out of the burden of taxation, there are
two preliminary matters which must be taken as somehow settled, namely,
the role of government and the proportion of its revenue raised through taxation.
To summarise my own approach to government: it is natural[2] for men and
women to live in society — family, tribe, regional grouping, etc. — so that some
system of community administration is always found. In our time, people mostly
live in the nation-state, where as the result of history and ongoing evolution,
government has acquired a large political-economic-social role. As for the
functions of government, which are old themes analysed by celebrated thinkers
but still the subject of passionate debate and change, economists have often
tried to bypass all this with the pragmatic device of "market failure", simply
holding that government must do what the private economy cannot. Yet this
"solution" only glosses over many problems. All practical cases of market failure
involve controversial decisions on the fact and degree of breakdown, and what
government must or can do to supply alternatives, while in the background
lies the facile assumption that "efficiency" or maximisation of output is the
overarching criterion. The case of "merit" goods (which the private sector
could supply but not with acceptable social efficiency, such as education and
health minima for all) shows the evolving force of social judgement on what
government "should" do. Further, market failure does not concern only the
allocation of resources to provision of public goods but extends to redistribution
of income and wealth. Many government outlays and tax arrangements designed
to alter distribution obviously reflect social opinions and pressures.
alter distribution obviously reflect social opinions and pressures.
However, for purposes of this article, I must take the evolving nature and
place of government activities as data at any given time, prior to the sharing
out of the burden of taxation. The difficulties inherent in doing this are obvious,
but they do evoke another kind of debate.
The second preliminary question is the division of government revenues into
taxation (taking this classically as a non-penal levy for general governmental
purposes), fees and penalties, returns from investment and enterprise, and
borrowing. While this raises problems for my project of analysing the equity of
tax allocation, fortunately they are much lessened in that in most countries specific
fees are usually of minor importance and government enterprise is rarely a source
of much net revenue — in fact, many modern states are hastily disposing of their
ventures to the private sector. Then, significant borrowing is normally connected
with deficit spending, so that again it may largely be separated off from the issue
of fair allocation of taxation. Yet, if tax revenue does in practice constitute the
bulk of government revenue, it is important to bear in mind that its overall amount
is affected by alternative sources of revenue and the use made of them.
As we approach the central task of this article, then, two important matters
have been set aside: the size of government in a given society and the division
of revenue into taxes and other sources. Each cannot be simplistically neglected
but does raise considerations for another context.