Morals and Markets: The Significance of Pre‐Tax Ownership
| Published date | 01 May 2004 |
| DOI | http://doi.org/10.1111/j.1468-2230.2004.00497.x |
| Date | 01 May 2004 |
| Author | Felix Maultzsch |
REVIEWARTICLE
Morals and Markets:The Signi¢cance of
Pre-Tax Ownership
Felix Maultzsch
n
Liam Murphy andThomas Nagel,The Myth of Ownership:Taxes and Justice,Oxford:
OxfordUniversity Press, 2002, i x þ228pp,hb d17.9 9.
INTRODUCTION
The question asto the grounds on whichthe state can collect private resources for
the purpose of public expenditure is a key one in political philosophy. It inspires
passionately held and widely polarised views. Contrast Robert Nozick’s famous
statement, ‘[t]axation of earnings from labor is on par with forced labor’,
1
with
PeterUnger’s argument that a wealthy person‘must give away most of her ¢nan-
cially valuable assets, and much of her income, directing the funds to lessen
e⁄ciently the serious su¡ering of others.’
2
Liam Murphy and Thomas Nagel’s
The Myth of Ownership deals with this important question.The provocative title
gives some indication of the authors’ aim: to show that the traditional perception
of taxation, as an interference with private property rights, is at best a na|«ve mis-
take and at worst deceptive ideology. In this review I shall outline the content of
the book and suggest objections to Murphy and Nagel’s intriguing argument.
First, I shall argue that the authors’ concept of property paves the way to a purely
consequentialist state that is unrestrained by any moral rights of its citizens. Sec-
ondly, I shall attempt to show more speci¢cally why pre-tax ownership has moral
signi¢cance. However, my argument does not aim to establish that market out-
comes are absolutely sacrosanct. The core question pursued in this review is
whether we should accept a normatively founded burden of proofagainst taxation.
THE ARGUMENTAGAINST PRE-TAX PROPERTY RIGHTS
TheMythofOwnershipbegins by asking whether a prima facie case against taxa-
tion can be made. Is there‘a general presumption in favor of leaving resources in
n
Research and Teaching Associate, Faculty of Law, Friedrich-Schiller-Universita
ºt Jena, Germany;
LL.M.,New York University Schoolof Law, 2003; Candidate for Dr. iur., Friedrich-Schiller-Univer-
sita
ºt Jena. I am indebted to Professors B. Sharon Byrd, Liam B. Murphy,Thomas Nagel and Joseph
H.H.Weiler for comments on an earlier draft of this review, and to the participants in the Seminar
for Hauser Scholars at New York University School of Law for di scussing the issues with me. The
support of Sandesh Sivakumaran and Puja Sondhi in preparing the Englis h version of the text is
gratefully acknowledged.
1R.Nozick,Anarchy, State,and Utopia (NewYork:Basic Books, 1974) 169.
2 P. Unger, Living High and Letting Die: Our Illusion ofInnocence (Oxford: Oxford University Press,
1996)134.
rThe Modern LawReview Limited 2004
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2004) 67(3) MLR 508^523
the private hands of those who have created or acquired them’?
3
This touches
upon the relationbetween market outcomes and state actions. Does the state need
to provide a justi¢cation for taking something away from the person who has
earned it in the market? The authors’ answer to this question is a clear ‘No.’ They
assume a conventional as opposed to morally founde d concept of property, which
excludes the right o f a person to her pre- tax income and wealth.
4
This argument is developed in the course of evaluating traditional elements of
tax equity. E⁄ciency requires thattaxation not induce individuals to abstain from
the generation of wealth to any relevant degree, because that would decrease wel-
fare to the disadvantage ofall, for instance by impairing the government’s ability
to collect taxes. But the collection of taxes mustals obe ‘fair,’ and here the concepts
of vertical and horizontal equity enter the picture. Horizontal equity entails that
people who are in a su⁄ciently similar position should be taxed equally, for
example if they acquire the same amount of income from comparable activities,
while vertical equity demands that people who are better suited to pay for
government services shouldpay more taxes.
5
Murphy and Nagel claim that horizontal and vertical equity fail to give a per-
suasive account of tax fairness, because these criteria focus on pre-tax ownership
and try to justify the tax burden fromthat baseline. In contrast, the authors think
that the fairness of state actionsl ike taxation can only be judged againsttheir out-
come, in this context, the post-tax distributionof wealth and other goods.
6
They
consider it‘myopic’to look fora separate justice in the distribution of tax burdens.
What counts is only the fairness of a state’s overall activity, including the distribu-
tion of resources, post taxation.The assumption that market outcomes, i.e.pre-tax
ownership, cannot be considered as a starting point for the evaluation of taxes is
mainly defended by the argument that markets are not independent from taxes.
Murphy and Nagel follow Hobbes in the assumption that life without a state
would be a war of all against all: ‘[a]nd in such a state of a¡airs, there is l ittle doubt
that everyone’s level of welfare would be very low and ^ importantly ^ roughly
equal.We cannot pretend that the di¡erence in ability, personality, and inherited
wealth that lead to great inequalities of welfare in an orderly market economy
would have the same e¡ect if there were no government to create and protect legal
property rights and their value and to facilitate mutually bene¢cial exchanges.’
7
Thus, market outcomes depend on state action including taxation and therefore
cannot be a benchmark for the fairness of taxes. The authors accordingly reject
the prevalent view that pre-tax property rights embody a moral entitlement.
8
3 L. Murphy and T.Nagel,The Mythof Ownership:Taxes and Justice(Oxford: OxfordUniversity Press,
2002) 5 (hereinafter, Murphy and Nagel).
4ibid 8^9.
5 The authors track the three traditional versions of vertical equity: bene¢t, endowment and the
equal-sacri¢ce principle (ibid 16^28). The bene¢t principle states that citizens should pay taxes in
proportion to the bene¢ts that theyobtain from the services government provides.The criterion
of endowment makes the ability to attain income and wealth the benchmark for tax burdens,
while the equal-sacri¢ce approach distributes tax burdens in accordance with an equal loss in
marginal welfare foral l citizens.
6ibid 12^14.
7ibid 16^17.
8ibid 32^34.
Felix Maultzsch
509rThe Modern LawReview Limited 2004
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