Tax Fairness by Convention: A Defense of Horizontal Equity

41 Pages Posted: 22 Aug 2015 Last revised: 5 Apr 2016

See all articles by Ira Lindsay

Ira Lindsay

University of Surrey School of Law

Date Written: April 4, 2016

Abstract

Horizontal equity is the principle that people who earn equal income should owe equal tax. It has gotten a bad name. Although horizontal equity remains a textbook criterion of tax fairness, scholarly literature is largely hostile. Scholars ranging from the legal theorist Louis Kaplow to philosophers Thomas Nagel and Liam Murphy question its conceptual coherence and normative significance. The crux of the case against horizontal equity is that it seems irrational to worry about the relationship between pre-tax income and tax obligations rather than determining tax policy in light of what our best theory of distributive justice tells us is the best post-tax outcome. I argue that horizontal equity is best understood as a compromise principle for people who disagree about deeper principles of distributive justice. The debate over horizontal equity reflects two distinct ways of thinking about fairness. One approach starts with principles that specify a just distribution of income, resources or utility and uses these principles to derive appropriate tax laws. A second approach analyzes fairness norms as stable and mutually advantageous compromises between people who have conflicting interests and differing moral commitments. Proponents and opponents of redistributive taxation can agree that at any given level of redistribution they will each be better off if taxes are horizontally equitable. Horizontally equitable taxation can thus prevent rent-seeking and ideological conflict over tax policy from generating a wasteful patchwork of narrow taxes and tax subsidies. Observing horizontal equity may be unimportant when people agree on ideal principles of justice and the relevant empirical facts. But under more usual conditions of deep moral and empirical disagreement over tax policy, treating pre-tax income as a normative baseline can prevent conflict over distributive questions from leading to wasteful and inequitable tax policy.

Keywords: Taxation, Tax, Equity, Fairness

Suggested Citation

Lindsay, Ira, Tax Fairness by Convention: A Defense of Horizontal Equity (April 4, 2016). Florida Tax Review, Vol. 19, No. 2, 2016. Available at SSRN: https://ssrn.com/abstract=2634781

Ira Lindsay (Contact Author)

University of Surrey School of Law ( email )

United Kingdom

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