The Power to Tax: Analytic Foundations of a

Should government's power to tax be limited? The events of the late 1970s in the wake of California's Proposition 13 brought this question very sharply into popular focus. Whether the power to tax should be restricted, and if so how, are issues of immediate policy significance. Providing a serious analysis of these issues, the authors offer an approach to the understanding and evaluation of the fiscal system, one that yields profound implications. Fiscal arrangements are analysed in terms of the preferences of citizen-taxpayers who are permitted at some constitutional level of choice to select the fiscal institutions to which they themselves are to be subject over an uncertain future. The central question becomes: How much 'power to tax' would the citizen voluntarily grant to government as a party to some initial social contract devising a fiscal constitution? Those in office are assumed to exploit the power assigned to them to the maximum possible extent: government is modelled as 'revenue-maximizing Leviathan'. Armed with such a model, the authors proceed to trace out the restrictions on the power to tax that might be expected to emerge from the citizen's constitutional deliberations.

Preface

xi

1 Taxation in constitutional perspective

1

(12)

1.1 The notion of a "constitution"

2

(2)

1.2 The logic of a constitution

4

(1)

1.3 The means of constitutional constraint

5

(1)

1.4 The Wicksellian ideal and majoritarian reality

6

(2)

1.5 The power to tax

8

(1)

1.6 The enforceability of constitutional contract

9

(1)

1.7 Normative implications

10

(3)

2 Natural government: a model of Leviathan

13

(21)

2.1 Leviathan as actuality and as contingency

15

(2)

2.2 Monopoly government and popular sovereignty

17

(9)

2.3 The model of "Leviathan": revenue maximization

26

(2)

2.4 The model of Leviathan as monolith

28

(2)

2.5 The constitutional criteria

30

(4)

3 Constraints on base and rate structure

34

(21)

3.1 Government as revenue maximizer subject to constitutional tax constraints

37

(2)

3.2 Tax-base and tax-rate constraints in a simple model

39

(5)

3.3 One among many

44

(4)

3.4 Tax limits and tax reform

48

(1)

Appendix: progression in the multiperson setting

49

(6)

4 The taxation of commodities

55

(28)

4.1 The conventional wisdom

56

(1)

4.2 Constitutional tax choice

57

(1)

4.3 Alternative forms of commodity tax: the choice of base

58

(7)

4.4 Uniformity of rates over commodities

65

(3)

4.5 Uniformity of rates over individuals

68

(1)

4.6 Discrimination by means of the rate structure

69

(9)

4.7 Summary

78

(2)

Appendix

80

(3)

5 Taxation through time: income taxes, capital taxes, and public debt

83

(26)

5.1 Income taxes, capital taxes, and public debt in orthodox public finance

84

(3)

5.2 The timing of rate announcement

87

(6)

5.3 Income and capital taxes under perpetual Leviathan

93

(5)

5.4 Leviathan's time preference

98

(4)

5.5 The time preference of the taxpayer-citizen with respect to public spending

102

(1)

5.6 The power to borrow

103

(4)

5.7 Conclusions

107

(2)

6 Money creation and taxation

109

(26)

6.1 The power to create money

111

(2)

6.2 Inflation and the taxation of money balances: a "land" analogy

113

(3)

6.3 Inflation and the taxation of money balances

116

(5)

6.4 Inflationary expectations under Leviathan

121

(4)

6.5 Inflation, wealth taxation, and the durability of money

125

(1)

6.6 The orthodox discussion of inflation as a tax

125

(3)

6.7 The monetary constitution

128

(2)

6.8 Inflation and income tax revenue

130

(1)

6.9 Monetary rules and tax rules

131

(4)

7 The disposition of public revenues

135

(18)

7.1 The model

136

(2)

7.2 Public-goods supply under a pure surplus maximizer: geometric analysis

138

(6)

7.3 The surplus maximizer: algebraic treatment

144

(4)

7.4 The nonsurplus maximizer

148

(2)

7.5 Toward a tax policy

150

(3)

8 The domain of politics

153

(15)

8.1 Procedural constraints on political decision making

154

(2)

8.2 The rule of law: general rules

156

(5)

8.3 The domain of public expenditures

161

(2)

8.4 Government by coercion

163

(5)

9 Open economy, federalism, and taxing authority

168

(19)

9.1 Toward a tax constitution for Leviathan in an open economy with trade but without migration

169

(2)

9.2 Tax rules in an open economy with trade and migration

171

(2)

9.3 Federalism as a component of a fiscal constitution

173

(8)

9.4 An alternative theory of government grants

181

(2)

9.5 A tax constitution for a federal state

183

(1)

9.6 Conclusions

184

(3)

10 Toward authentic tax reform: prospects and prescriptions

187

(19)

10.1 Taxation in constitutional perspective

190

(2)

10.2 Tax reform as tax limits

192

(4)

10.3 Tax-rate limits: the logic of Proposition 13

196

(2)

10.4 Tax-base constraints

198

(2)

10.5 Aggregate revenue and outlay limits: ratio-type proposals for constitutional constraint

200

(2)

10.6 Procedural limits: qualified majorities and budget balance

202

(1)

10.7 Toward authentic tax reform

203

(3)

Epilogue

206

(2)

Notes

208

(13)

Selected bibliography

221

(6)

Index

227

What is included with this book?

The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.

The Used, Rental and eBook copies of this book are not guaranteed to include any supplemental materials. Typically, only the book itself is included. This is true even if the title states it includes any access cards, study guides, lab manuals, CDs, etc.

FREE SHIPPING

Amazon no longer offers textbook rentals. We do!

The Power to Tax: Analytic Foundations of a Fiscal Constitution

Summary

Table of Contents

Supplemental Materials