What is a fair tax exactly
Politician often claim that their taxes and benefits are fair or those of their opposition are unfair, in fact this is the basis of the labour campaign, but actually is a fair tax?
It often seem that it is taken for granted that a fair country is one in which there is equality of income and that the tax system should bring this about by being progressive, ie the tax paid as a percentage of income rises with income, and that this is something that everyone wants.
Firstly lets see what the Oxford English Dictionary makes of the word fair
adjective 1 just or appropriate in the circumstances. 2 treating people equally. 3 considerable in size or amount. 4 moderately good. 5 (of hair or complexion) light; blonde. 6 (of weather) fine and dry. 7 Austral./NZ informal complete. 8 archaic beautiful.
clearly the appropriate entries are 1 and 2. Looking at 2 this seems to have two contradictory meanings when we look as income and the tax system. That is the if we treat people equally in terms of their income then we must have an extremely progressive tax system whereby when a certain income level is reached the tax is 100% and below that income level people are given benefits to make up the difference, almost a form of communism. However if we look at equality at the stage of taxation then everyone should pay the same rate of tax. Clearly both of these cannot happen simultaneously. Now the first definition seems in precise since to use it we will be required to look up the definitions of just and appropriate.
However, more importantly in political campaigning is what most people consider to be the meaning of the word fair. To help us understand this we should consider something much simpler than the economy, say a game of cards, such as snap. Most people would consider snap a fair game provided that nobody cheats but its not a game in which the outcome is always equal, in each game there is a winner and a loser, in fact if the outcome was always equal nobody would play it because the game would always end in a draw and quickly become boring.
So what is it that intuitively makes us think that a game of snap is fair? It’s that despite the fact that every game has a winner and a loser all the people playing have the same opportunity to be the winner or loser, that there are no rules in the game that favour one of the players over the others (unlike blackjack in most casinos). But a progressive tax system isn’t just a rule that favours one person over another it is a rule that after the outcome has been decided, ie after people have earned different amounts, then takes the winnings from one player and gives them to the another. It is the same as taking the cards that the first person to call snap has just won and giving them back out so everyone has the same number of cards again.
You may now argue that despite this a progressive tax system is fair because unlike a game of snap not everyone has an equal chance of “winning” in the economy. However there are two reasons why this is an invalid argument.
Firstly it assumes that your only “winnings” are in the form of income but people get enjoyment, satisfaction or whatever else they seek out of things over than money (in fact its only a small minority of people who actually enjoy earning money for the money itself and not for what it can be spent on or as a bi-product of what they did to earn it). For example one person may value a large house more where as another person may value leisure time more. Then the first person therefore spends more time working and resultantly earns a higher level of income in order to buy a larger house than the second person who takes more time off since that is what they enjoy. How is then “fair” to tax the first person for his use of his time whilst not the second thus causing people who both use all of the resources, in this case time, for what maximises their enjoyment to end up with different levels of enjoyment. And why not tax the second person some of their leisure time in order to pay for the first persons house.
Secondly, surely the aim of policy should in this case be to even out the chances of “winning” rather than using taxes to even out some of the”winnings” whilst leaving others like leisure time largely uneven.
