CHAPTER XLVIII

THE MINIMUM SACRIFICE THEORY OF TAXATION1

If taxes were voluntary contributions for the support of the state, it would be important that we should recognize some principle by which to determine how much each individual. ought to give. Since the payment of such a tax and its amount would be matters for the individual conscience, it would be pertinent to ask what principle of obligation the individual ought to adopt as his rule of action. But since taxes are not voluntary contributions but forced payments, we need to know .. not so much what the social obligation of the individual is as what the social obligation of the state is,-not how much the individual ought in harmony with his social obligation to give, but how much the state ought in harmony with its own obligation to take from him and.under what conditions to take it. In the matter of taxation the state alone is the voluntary agent, and consequently the social obligation of the state alone is to be determined. It is one thing to say that the individual ought to contribute to the support of the state in proportion to the benefit which he receives, or to his ability to pay, or to his faculty, but it is quite another thing to say that the state ought to make him do any of these things.

These two questions, though distinct, may be resolved into one by assuming that it is the duty of the state to make its citizens do whatever they ought in conscience to do. It would still be the duty of the state which would have to be determined, but under such an assumption that duty would be clear whenever we had found out how the individual ought to act. Such

1 The substance of this chapter was published in the Political Science Quarterly, Vol. XIX, No. 1 (March, 1904).

was the assumption upon which states acted in an earlier and darker age, but it has generally been abandoned except in discussions of the basis of taxation, and it is time that it should be abandoned even here.

It is not necessarily the duty of the state to make the individual do whatever he ought to do. In many cases it would cost more than it is worth. In some cases, of course, the state ought to make the individual do whatever his duty requires, as to refrain from violence and fraud, to pay a debt, or to keep a contract. In these cases it is so important that the individual should do what his duty requires as to more than pay the cost of compelling him to do so. But there are many other cases where the duty of the state has to be determined on other grounds, largely because the state's efforts at compulsion would do more harm than allowing the individual to ignore his duty. It may be that each citizen ought to contribute to the support of the Church "according as the Lord hath prospered him," but none of the more advanced nations would think of trying to compel him to do so. It may be the duty of each laborer to join a union, but no state ought to force him into one, much less ought the union to be allowed to appropriate that prerogative of sovereignty to itself. It may be and very likely is the duty of each individual "to produce according to his ability and consume according to his needs," but no one but a socialist would claim that the state ought to try to make him do so. To succeed in this would require omniscience and omnipotence, and the state possesses neither. It is obviously no one's duty to try to do that which he is manifestly incapable of doing. This applies to states as well as to individuals. The illustrations might be multiplied, but enough has been said to show that there are no a priori reasons for assuming that because the individual ought to pay for the support of the state according to his ability, for example, that it is therefore the state's duty to make him do so. All the results of such efforts at compulsion must be weighed in the balance before deciding to undertake it.

It is not to be inferred that the question of taxation is entirely divorced from social utility. Neither is it to be inferred that there are two kinds of social obligation-one for the individual and the other for the state-nor that the ultimate test of social obligation is not the same for the one as for the other. A very distinct problem is involved in the question of the apportionment of taxes; namely, What ought the state to do in the matter? Moreover, there is only one kind of social obligation; and the same test of action, whatever that test may be, must be applied in determining the duties of both the individual and the state. But even when a general principle of obligation has been agreed upon, no one is in a position to decide upon the specific duty of either the individual or the state until he knows what would be the general economic consequences of their various possible acts Recognizing that each act is, for his purposes, the first link in a chain of causation, he must be able to trace that chain from its initial act to its general results before he can tell whether or not the act in question conforms to his general principle. As applied to taxation, for example, he must know how the effort to collect a certain tax will affect industries and morals and other social interests before he can say whether the state, in levying the tax, would be acting in harmony with the general principle of obligation agreed upon. If, to be more specific, he should find that the attempt to collect a certain tax would discourage certain desirable industries and commendable enterprises, that would be at least a partial reason for condemning it. That is to say, if the industry which is suppressed meets the test of the ethical principle, the tax which suppresses that industry cannot possibly meet the same test.

Let us accept, for purposes of this discussion, the principle of utility and assume that the state, as well as the individual, ought to promote the general welfare—or the greatest good to the greatest number. How can the state promote the general welfare in the matter of taxation? In discussing its duty the author cherishes no illusions as to the nature of the state.

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Realizing that the latter is merely an abstraction-a convenient name for certain forms of joint action on the part of a multitude of individuals-and that it can have no duties separate and apart from those of the individuals who compose it, yet the duty of the individual in imposing his will upon other individuals through legislation is so distinct from his duty in other matters that it is much more convenient, and fully as accurate, to speak of the former class of duties as if they belonged to the state itself.

The question of the duty of the state in matters of taxation is, of course, to be kept distinct from the question of its duty in the expenditure of revenue after it is raised. By the expenditure of a given revenue the state may in various ways add positively to the general welfare but it may not be so obvious how it can do this merely by collecting revenue. There are certain ways of collecting revenue which are generally believed -and no doubt correctly-to promote well-being at least in a negative way. When, for example, a tax or a license suppresses or holds in check an industry which is regarded as more or less deleterious, such a tax or license meets the utilitarian test and is therefore justified. Writers on taxation generally (even those who uphold the benefit theory or the faculty theory) accept this as a justification, even though it does not conform to their special canon of justice. But if the general utilitarian principle, or the general-welfare argument, can in this special case override their special canon, why may it not in other cases as well? It is at least an admission that the general utilitarian test is a more fundamental one than that represented by their special canon. If so, the more fundamental test ought to be applied in all cases.

While, as already suggested, there are certain taxes whose collection adds to the public welfare by suppressing undesirable industries, yet, generally speaking, the collection of a tax is in itself an evil. It is the cost which we have to undergo for the advantages which may be secured by means of the revenue after it is collected. Since a tax is, speaking thus generally, an

evil, a burden, a sacrifice imposed, it is obvious that the utilitarian principle requires that that evil, that burden, that sacrifice, shall be as small as possible in proportion to the revenue secured. When the taxes are so levied and collected as to impose the minimum of sacrifice and the revenue is so expended as to confer the maximum of advantage, or when the surplus · of advantage over sacrifice, of good over evil, is at its maximum, the state has fulfilled its obligation completely—it has met the utilitarian test.

If it be once admitted that the state's obligation in the matter of taxation is to be determined on the basis of a broad principle of public utility, then it is apparent that the argument in favor of either the benefit theory or the faculty theory must be reconstructed. Instead of basing the argument upon the duty of the individual, as is usually done,' the upholder of either of these theories must show that if the state should apportion taxes according to benefits received, in the one case, or according to ability to contribute, in the other, such apportionment would impose the least burden, all things considered. This is possibly the subconscious basis of the arguments of those writers who have championed either of these theories, but it does not seem to have been explicitly recognized by any of them. The champion of the faculty theory, for example, may conceivably have reasoned somewhat as follows:

Major premise. The burdens of taxation ought to be so distributed as to involve the least possible sacrifice on the part of the community as a whole.

Minor premise. When each individual contributes in proportion to his ability, the whole burden of taxation is most easily borne; that is, with the minimum of sacrifice.

Conclusion. It is the individual's duty so to contribute. Granting the premises, the conclusion follows as a matter of course, so far as the individual's duty is concerned; but, as we shall see later, the minor premise is not sound and, as we have

1 If such is not the argument, then the leading expounders of these theories are at least guilty of inaccurately expressing their views.