Straitjacket: Wider Implications of the Natural Property Rights Case That Regressive Taxation Is a Taking
53 Pages Posted: 10 May 2017 Last revised: 17 May 2017
Date Written: May 8, 2017
Natural rights theories by their nature have a strong tendency to make arguments for very strong rights of private property. Perhaps no claim is bolder than natural rights-based assertions that a progressive income tax is an unconstitutional violation of the U.S. Constitution’s Takings Clause.
Somewhat oddly, natural property rights scholars have not seen fit to address the mirror image case, regressive taxation. To my knowledge, no one has considered this issue in detail. Given the precise symmetry between progressive and regressive taxation, we can demonstrate quite easily that natural rights arguments condemning progressive taxation also must deem regressive taxation a violation of the Takings Clause. Pondering this mirror image case is no mere intellectual sport. Natural property rights scholars have as their primary target a single levy: the progressive federal income tax. Unconstitutional regressive taxation implicates the tax regimes of all 50 states. Thus natural property rights arguments, properly extended to ban regressive as well as progressive taxation, calls for striking down not just one (national) tax system, but in addition the 50 state tax systems.
Consigning both progressive and regressive taxes to the dustbin of unconstitutionality, the natural property rights framework is left with only one viable mode of taxation: proportionality — so-called flat taxes. It is one of the theses of this article that this inflexibility is a signal weakness in natural property rights theories. Whether one general favors or disfavors redistribution, the likelihood that one single income tax rate regime is the only option across all times and circumstances seems remote. This is the titular straitjacket imposed by natural property rights theories of how the Taking Clause applies to taxation.
Taxation is not alone in this respect. Natural property rights theories, perhaps surprisingly, impose similar straitjackets on monetary policy and even on redistributionary measures that help essentially every citizen — rare and prized Pareto-improving policies. These result flows rather clearly from the assumption that the natural rights principles said to animate the U.S. Constitution in general and the Takings Clause in particular include a powerful norm requiring that every government action must allocate gains in proportion to current wealth or income.
Although not previously noted, in the name of natural property rights natural property rights theorists have conjured up a new version of efficiency, even more demanding than Pareto efficiency. I label this new standard, requiring that all governmental acts distribute their benefits in proportion to current wealth or income, super-Pareto efficiency. Applied rigorously, this new standard constricts public policy to the vanishing point. It is not so much that it invalidates numerous common legal regimes (e.g. zoning, welfare); rather, the real problem is that it shrinks the policy choice set dramatically.
Natural property rights theory also missteps by defining public goods in too narrow a fashion; in particular failing to account for the fact that charity is a public good. This is a critical fact, as it forms the basis for redistributionary governmental policies like progressive taxation and welfare.
This paper does concur with natural rights theory on one point: the Takings Clause does impose some constraints on taxation. It differs with this work dramatically, however, in defining the contours of those limitations. Natural property rights assumptions lead directly to the conclusion that a flat tax and only a flat tax complies with the Takings Clause. The Continuous Burden Principle, by contrast, suggests that a wide range of progressive (and regressive) tax systems are constitutional, in keeping with long-standing views about the relationship between taxation and takings.
Keywords: Property Rights, Natural Rights, Natural Property Rights, Taxation, Progressive Taxation, Regressive Taxation, Charity, Efficiency, Inequality, Redistribution, Takings
JEL Classification: D30, D31, D61, D63, H13, H41, K11, K34
Suggested Citation: Suggested Citation