61 Pages Posted: 27 Jun 2000
Date Written: June 2000
This article examines one standard libertarian defense of proportionate taxation: that it is the obvious means to achieve a fair division of the social surplus generated by social cooperation. Focusing on the version of the argument developed in David Gauthier's Morals by Agreement, the article concludes that rather than leading to proportionate taxation, Gauthier's complicated formula for dividing social surplus (a variant of the Nash bargaining solution) at first cut leads to a tax scheme even more regressive than a head tax. Gauthier appears to conclude otherwise because he gets the implications of declining marginal utility of income for Nash-type bargaining solutions exactly backwards. Rather than implying that the poor will hold out for a greater relative share of the gain, the declining marginal utility of income implies that the poor will concede a greater relative share.
The foregoing argument presumes that the only task of the social planner is to justly apportion the tax costs of running the state, against a background distribution of assets itself presumed to be just. When one takes into account the need, implicit in Gauthier's system, to use the tax system to correct the maldistribution of surplus value inherent in market prices, it becomes clear that Gauthier's scheme could imply almost any tax rate structure, from a steeply regressive one to (more plausibly) a steeply progressive one. In light of the difficulty of deriving proportionate taxation from Gauthier's premises, the article concludes that Gauthier's attraction to proportionality seems to be driven less by his premises than by the conclusion itself. Gauthier is hardly alone in this respect. Proportionate taxation seems to exert a strong, almost universal, pull on the libertarian imagination that resists logical explanation.
JEL Classification: H20
Suggested Citation: Suggested Citation
Fried, Barbara H., Why do Libertarians Love Proportionate Taxation? The Case of David Gauthier's 'Morals by Agreement' (June 2000). Stanford Law School, Public Law Working Paper No. 12. Available at SSRN: https://ssrn.com/abstract=232641 or http://dx.doi.org/10.2139/ssrn.232641