Nothing is certain, except death and taxes. We can’t make the former fair but we can at least try when it comes to taxation.

Tax is fundamental to government. It is essential to fund the services we require to live in a modern society, including military, police, judiciary, roads, healthcare and education. It has also become more important in recent decades. At the time of Federation, the Australian tax system collected around 5% of GDP. Today this number stands at around 29%.

But is it fair? Are we paying too little or too much tax? Should those with greater means pay more? These are questions that must be asked of any tax system, and two works by philosophers offer very different answers.

The first is Robert Nozick’s Anarchy State and Utopia. It argues that individuals (and, by extension, the corporations they own) ought to own 100% of their income. Individual property rights are paramount, and any taxation beyond what is required to protect borders and protect these property rights is unjust. In short: only public expenditure on the police and military can be justified.

One of Nozick’s more colourful claims is that taxation is on par with forced labour. Tax forces workers to work in part for themselves, and in part for government.

But while Anarchy State and Utopia is a cult favourite of many modern-styled libertarians arguing for lower taxes, most people consider its position on tax unfair. Many find the consequences of the gross inequalities Nozick permits objectionable, while others argue a child’s right to public education, or a citizen’s right to universal healthcare, outweighs the right individuals or corporations have to their pre-tax wealth and income.

An additional issue for Nozick is how to determine who funds the military and police. Should it be a fee for service? And if so, does this mean only the very wealthy who pay tax should enforce property rights, given they have the most to benefit and lose without military and police? Or should everyone pay an equal amount of tax, regardless of their income or wealth or their ability to pay? (The fallout of this was seen in the 1990’s in the UK when a Thatcher Government head tax proposal was met with violence and riots in the street).

The other side of the tax coin

The second perspective comes from Thomas Nagel and Liam Murphy in their book The Myth of Ownership. They tackle the definition of tax fairness in a nearly opposite way to Nozick. They argue that it does not make sense that citizens have full (or any) rights to their pre-tax income and wealth because income and wealth cannot exist without government. Individual and corporate incomes, and the level of incomes, occur because of the existence of government, not despite it.

They have a point. A successful Australian economy requires the enforcement of law, market regulation, monetary policy (not least for the currency we use), and regulation that prohibits collusion, intimidation and other forms of business malpractice. A banker earns money because the government has mandated a currency – and she keeps her money because property rights exist. A lawyer’s income occurs because of the legal system, not despite it. We might also argue that a successful Australian economy requires investments in public education and public healthcare.

Yet, while individual and corporate income may be contingent on the existence of government, and markets might not be considered perfectly fair nor free, it doesn’t follow that market determined outcomes are completely arbitrary. We often say that someone deserves to earn more if they work harder. So if someone decides to go to university or undertake a trade, rather than surf all day, we might think they deserve a higher salary.

This very simple point (not to mention the very real practical issues with discarding market-based outcomes) mean Nagel and Murphy, like Nozick, fail to provide a complete blueprint for us to determine tax fairness. Nozick fails because he assumes market distributions are 100% fair; Nagel and Murphy fail because they assume market distributions (and any and all inputs that determine these distributions such as hard work and effort) are irrelevant.

And yet both philosophies help us focus on important tax fairness elements. Nagel and Murphy show it is important to focus on people’s post-tax positions and effectively highlight that pre-tax market determined income and wealth are not necessarily “fair”, largely because these incomes and wealth cannot exist without tax and government. Nozick effectively highlights that income and corporate tax can only be justified if associated government expenditure can also be justified.

Even if you find that neither of these perspectives to be the right one, they help establish the parameters of a fair tax system. It’s then up to us to inject our values to determine which system is right for the kind of society we wish to live in.