The Social Contract Revisited: Tax Fairness and the Tax Mix

Since a society’s tax system is one of its most basic and essential social institutions, the justice or fairness of this tax system is an important subject for social and political theory, as well as for practical politics. In order to assess the fairness of any particular tax or the tax system as a whole, however, it is essential to consider the purpose of the tax and the tax system in general. While the most obvious purpose of most taxes is to raise revenue to finance public expenditures, taxes are also employed to regulate social and economic behaviour and to shape the distribution of economic resources. For this reason, the concept of tax fairness is necessarily pluralistic, depending on the particular purpose for which the tax is imposed. Where a tax is designed to affect the distribution of economic resources, principles of tax fairness dissolve into broader considerations of distributive justice which determine the manner in which economic resources are fairly distributed and the respective roles of taxes and transfer payments to achieve this distributive goal. Although conceptions of distributive justice differ significantly, widely shared and normatively defensible principles of distributive justice support progressive taxes on income and wealth transfers in order to moderate inequalities that would otherwise prevail in the distribution of income and wealth, as well as the opportunities that result from substantial inheritances.