'The Ability to Pay' in Tax Law: Clarifying the Concept's Egalitarian and Utilitarian Justifications and the Interactions between the Two
61 Pages Posted: 17 Oct 2017 Last revised: 24 Jun 2018
Date Written: October 15, 2017
A vast amount of tax literature appeals to the premise that a system of taxation should assign tax burdens according to taxpayers’ “ability to pay.” Despite the broad-based assent to the importance of “ability to pay,” however, there has been far from a consensus on why it is important, or even on what the term means. These confusions are frequently overlooked, though, because many of the characterizations of and justifications for “ability to pay” come out the same way on various issues—thus masking the differences among the viewpoints. In this Article, I attempt to unpack and shed much-needed light on the term “ability to pay.”
It turns out that the notion of “ability to pay” is employed for two main reasons: Distributing the tax burden according to people’s ability to pay furthers both egalitarian and utilitarian ideals. In this Article, I begin by teasing these goals apart and by explaining how they are furthered by distributing the tax burden according to people’s “ability to pay.” I then proceed to explore in greater depth how successful the notion of “ability to pay” is at furthering each of these two goals, and I consider different ways of assigning the tax burden (and different collection methods) that could perhaps better further egalitarian and utilitarian goals. While many accounts further both goals somewhat well, and while many of these same accounts further one goal extremely well, it is difficult to identify an account that furthers both goals extremely well.
Ultimately, I zero in on an account that, in my view, best satisfies the egalitarian goal and best satisfies the utilitarian goal. Further, because it best satisfies both individual goals, I argue that it is also the account that best satisfies the underlying ambition of an “ability to pay” tax system to further both goals. The account that I offer is a version of a utility tax—a version both according to which the tax is collected in terms of utility, and according to which the tax burden is determined in terms of utility.
The account I offer, in various ways, could be described as an “ability to pay” tax in terms of utility. Thus, although I begin the Article by exploring the notion of an “ability to pay” tax and I then argue that an “ability to pay” tax, as it currently exists, is not the account that best furthers egalitarianism and efficiency, the account I defend does incorporate some key features of an “ability to pay” tax (despite being very different in other ways). Further, it is only in virtue of unpacking the notion of “ability to pay,” and exploring the rationales and justifications that underlie it, that I will be able to identify the account I defend, recognizing its unique ability to simultaneously further egalitarian and utilitarian goals.
Keywords: tax law, tax policy, legal theory, jurisprudence, law and philosophy, law and economics
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