The theory of taxation in literature

Theories of taxation slideshare

For the subjective sacrifice in taxation may not be merely the opportunity cost forgone of the money paid; it may also be increased by moral outrage at the tax procedure. Similarly, if two individuals subjectively enjoyed their identical money incomes differently, the minimum-sacrifice principle would require that the happier man be taxed less because he makes a greater sacrifice in enjoyment from an equal tax. For although it implies that the rich man should be taxed more than the poor man, it does not necessarily say that the former should be taxed more than proportionately. The scholar's edition second edition was published in by the Mises Institute and is the source of this html book. But the point is that even on its own grounds, the equal-sacrifice theory can justify neither progressive nor proportionate taxation. Once we see that subjective sacrifice is not necessarily tied to the utility of money, we may extend the principle further. Since men always try to find net benefits in a course of action, it follows that a discussion in terms of sacrifice or burden cannot establish a rational criterion for human action. A slowly declining utility-of-money schedule would call for regressive taxation. But man is constantly striving to sacrifice as little as he can for the benefits he receives from his actions. And who would then refrain from loudly proclaiming the enormous enjoyment he derives from his income?

We are faced again with that pons asinorum that defeats all attempts to establish canons of justice for taxation—the problem of the justice of taxation itself.

Simultaneously, the tax shares of A and B are determined by their individual demand schedules.

ability to pay theory of taxation

Similarly, if two individuals subjectively enjoyed their identical money incomes differently, the minimum-sacrifice principle would require that the happier man be taxed less because he makes a greater sacrifice in enjoyment from an equal tax. Yet here is a theory that talks only in terms of sacrifice and burden, and calls for a certain distribution without demonstrating to the taxpayers that they are benefiting more than they are giving up.

Taxes paid are seen as a sacrifice by taxpayers, which raises the issues of what the sacrifice of each taxpayer should be and how it should be measured: Equal sacrifice: The total loss of utility as a result of taxation should be equal for all taxpayers the rich will be taxed more heavily than the poor Equal proportional sacrifice: The proportional loss of utility as a result of taxation should be equal for all taxpayers Equal marginal sacrifice: The instantaneous loss of utility as measured by the derivative of the utility function as a result of taxation should be equal for all taxpayers.

Practically, then, the sacrifice principle would have to exempt the anarchist from taxation. Here we have a curious principle of justice indeed—based on adjustment to hurt.

expediency theory of taxation

Since the nub of the sacrifice theory—interpersonal comparisons of utility—is now generally discarded, we shall not spend much time discussing the sacrifice doctrine in detail. In Power and Market was combined with Man, Economy, and State, which had been the original intent of the author when written.

For an attempt to establish proportional taxation on the basis of equal sacrifice, see Bradford B. The ability-to-pay principle is unclear on this point. The consequence, as we have seen, would be a return to the conditions of barbarism.

Since men always try to find net benefits in a course of action, it follows that a discussion in terms of sacrifice or burden cannot establish a rational criterion for human action.

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