What are the rights of the civil state concerning taxation? The first consideration is that it allows the state to remove income, capital gains or wealth from people who have lawfully earned their income or succeeded in making profits. What gives it the right to do so? Philosophers have considered this over the ages but there seems to be a broad agreement that in benefiting from the state we enter into a contract in which we agree contribute to provide the benefits of belonging. Thus even the child in the womb is taken as entering this contract, since it is benefiting from the safe condition of its mother – which the state has enabled.
Theology recognises the state as a subject of natural law. Since we are created as social animals, and so live in collective societies, we are bound to obey the proper authorities and pay our share towards the necessary collective benefits. But that does not give the state a free hand. It must always remember that it is the citizens’ funds, which have been lawfully acquired, which they are taking. Notionally, indeed, it should be regretfully apologising for every penny it takes, and it should ensure that this is used for necessary, just, and proper benefits for society as a whole. (See the Laffer Curve, below)
Is this the impression we have? Or does it feel closer to grabbing its money any way it can which is consistent with, or tending towards, the ruling party remaining in power? And there are other considerations:
What happens to a society in which its most successful people lose much of the benefits of of success through progressive rates of taxation?
Is it proper for the state to use taxation as a device to reduce the diversity of incomes? We are often presented with examples where senior executives have salaries and benefits many time higher than their average employees. But if the employees have salaries at the normal market level are we justified in complaining?
Is it just to impose new taxation on long term activities? For example, the removal of tax relief on interest charges for those who entered buy to let projects to build up their retirement funds. A business can treat these charges as costs of business but the individual now cannot do this. Another example would be extra charges on old diesel cars bought at a time when diesel was recommended as avoiding air pollution.
The Laffer Curve. This is attributed to the American Arthur Laffer in the 1970s. He visualised a rate of tax chosen by the state from 0 percent of personal income to 100 percent. In the first case the tax take is zero. In the second case the tax take is also zero (because no one bothers to work when they aren’t rewarded. ) Somewhere between the two is the ideal point where maximum tax take is found. While in practice this ideal is variable and difficult to pinpoint it reminds the government that increased taxes may sometimes reduce the take. For example the high stamp duty on expensive houses has contributed to a reduction in elderly people downsizing, and thus releasing property for the young.