One of the characteristic features of the near perspective on taxation that must be implemented in our country is “constitutional” orientation. According this idea, a “constitution” is conceived as the set of rules, or social institutions, within which individuals operate and interact with one another.
In constitutional choice, the individual must base his selection upon some prediction about the working properties of alternative sets of rules over a whole sequence of “plays,” a sequence that may well be indeterminate. The horizon is necessarily more extensive than in any post constitutional choice. This extension in the time horizon ensures that, in almost all real-world approximations, the individual chooser is more uncertain about his own private prospects or positions. The utility-maximizing calculus becomes quite different from that which would be required in the simpler selection of one strategy within some predetermined set of rules.
We are interested in the idea of a constitution in its “political” or social sense, as a set of rules that establish the setting within which the whole range of individual interaction takes place.
Why do we need such a constitution? Where is the logic of the constitution to be found?
Of course, we can find to the extent that government could be predicted to act “perfectly”–whatever that may mean–in all periods, there would be no conceptual or logical basis for imposing constitutional limits; such limits could only prevent government from taking actions that are, by definition, “desirable.” In this sense, the constitutional perspective is irreconcilably at odds with the benevolent despot model, which in its various guises underlies the analysis of public policy generally and of conventional tax theory in particular. The logic of constitutional restrictions is embodied in the implicit prediction that any power assigned to government may be, over some ranges and on some occasions, exercised in ways that are at variance with the desired usage of such power, as defined by citizens behind the veil of ignorance. As emphasized throughout modern public-choice theory, persons who act in agency roles, as “governors,” are not basically different from their fellow citizens. We need not, of course, rule out the possibility of “moral” behavior on the part of those persons who make governmental decisions. Our approach does rule out the presumption of such behavior as the basis for normative analysis. Those who might argue that governments should be analyzed on such a presumption of agent benevolence are denying the legitimacy of any constraints on government, including electoral ones. In this setting, there is no logical basis for a constitution.
The Means of Constitutional Constraint
Once the need to constrain the power of government is accepted, the question automatically arises as to the sorts of constraints–or constitutional rules–that are available. By what means might the citizen hope to limit the exercise of public power so as to ensure that outcomes fall within tolerable bounds?
To a very substantial extent, modern economists have implicitly accepted the prevailing twentyfirst-century presumption (or faith?) that nominally democratic electoral processes are sufficient in themselves to guarantee that government activity remains within acceptable limits. Constitutional analysis in economics has consequently focused on the choice between alternative electoral procedures as the major element in the citizen’s constitutional calculus. For this reason, it is worth emphasizing at the outset that nonelectoral rules are conceivable, that they do in fact play a significant part in most recognizably democratic constitutions currently operative, and that it is not obvious on prima facie grounds that they are less significant in controlling government than are purely electoral constraints.
For example, most constitutions involve constraints on the domain of public activity: rules are set that specify those things which governments may and may not do. One aspect of such rules is the application of restrictions on the possible misappropriation of public funds by legitimate public officials. Apparently, the possibility that politicians (even elected ones) might simply pocket tax revenues is sufficiently significant to merit the extensive accounting procedures and explicit rules of conduct that are provided for in most allegedly democratic constitutions. Further, restrictions are typically placed on the legitimate activities of government, in terms both of the nature of the services that government provides and of the type of laws that governments may enact. In some cases, constraints are also placed on the structure of government by assigning specific functions to specific units, as is the case with the decentralization of political power evidenced in a federal political structure.
In general, we see such nonelectoral constitutional rules existing side by side with electoral ones, and there seems no particular reason for elevating the latter to a position of primacy.
Tax Ideal and Majoritarian Reality
One condition necessary to ensure a citizen that the government would never impose injury or damage on him, while ensuring all citizens in the same fashion, is the requirement that all governmental decisions be made by a rule of unanimity. We as citizen must to recognize the importance of the unanimity rule as an idealized benchmark, since it would be necessary to ensure that all governmental actions represented genuine “improvements” (or at least no damage) for all persons, as measured by the preferences of the individuals themselves. Only through general agreement could the preferences of citizens be revealed; there is no other way of “adding up” the individual evaluations; there is no other means of ensuring that collective action will always be “efficient” in the welfare economists’ usage of this term.
It is important to note that, in this idealization of political order, “government” possesses no genuinely coercive power. In this setting, each and every public activity is considered separately, together with a specific cost-sharing arrangement. And the activity proceeds only when unanimous consent is reached. No individual can be coerced in such a setting, either by some entity called the “government” or by some coalition of other individuals in the electorate. Each activity publicly approved necessarily represents the outcome of a complete multilateral trade from which net benefits are received by all parties.
The costs of achieving unanimous approval for public activity are so enormous that the rational citizen can be expected, when making his constitutional choice over the set of voting rules, to trade off some of the narrow in-period “efficiency” of the unanimity rule in return for workability in political processes. Whether a simple majoritarian process would be the natural outcome of this trade-off seems highly doubtful. But this is the decision rule widely observed in practice, and much modern public choice takes majority rule as given. What has not perhaps been sufficiently emphasized in the public-choice literature is that the move from unanimity to majority rule involves a drastic weakening of the power of purely electoral constraints. Indeed, it may be suggested that commonly observed majoritarian rule can best be modeled as if it embodies no effective constraint on the exercise of government powers at all. Some citizens may coerce others, as when the decisive majority operates to overrule the desires of the minority. Quite apart from this, those individuals who make up the institution of “government” possess the power to coerce the citizenry at large.
Given this constitutional setting, how are we to understand tax matters? What is involved in the power to tax? And by what means can that power be constrained? More generally, to pose our central question again, what sort of tax institutions would we expect the rational taxpayer-citizen to select in determining the constitution to which he is to be subject?
The Tax Power
As we must know, for the ordinary citizen, the tax power is the most familiar manifestation of the government’s power to coerce. This power to tax involves the power to impose, on individuals and private institutions more generally, charges that can be met only by a transfer to government of economic resources, or financial claims to such resources–charges that carry with them effective powers of enforcement under the very definition of the taxing power. To be sure, governments may use tax revenues for financing public goods or transfers that citizens-taxpayers desire. But we must distinguish sharply here between a rationalization for the government’s possession of the power to tax and an understanding of that power in and of itself. The power to tax, per se, does not carry with it any obligation to use the tax revenue raised in any particular way. The power to tax does not logically imply the nature of spending. Seen in this way, tax power is simply the power to “take.”
If the government wishes to obtain a particular piece of property, it is of no account whether it does so simply by direct appropriation or by purchase together with a tax imposed on the original owner amounting to the full purchase price. Both government and the owner are in an identical position after government action, irrespective of the precise details of the means of appropriation. If any distinction between taking and taxing is to be sustained, therefore, the tax alternative must involve certain additional requirements not present with direct appropriation.
For example, if the power to tax is constrained by some generality-uniformity requirements that all individuals in similar circumstances should pay an identical tax, then it may be that, whereas the direct appropriation alternative might survive electoral scrutiny, the tax alternative would not do so. In this case, the generality requirement ensures that electoral processes will operate within tolerable limits: fiscal constraints complement electoral constraints. In all cases, however, the role of fiscal rules is to limit and appropriately direct the coercive power of government, as embodied most conspicuously in its power to tax.
Historically, governments have possessed genuine powers to tax, although representatives of the citizenry seem to have recognized the sweeping import of such powers. Controls over the sovereign have been exercised through constraints on the taxing authority.
All constitutional rules may be interpreted as limiting the potential power. Similarly, the power to tax is not the only dimension to the government’s coercive power, although it is a major one. As we have emphasized, our focus here is on the power to tax and on constraints on that power. That focuses rules out explicit consideration on nonfiscal constitutional rules, such as those that might be imposed through definition of franchise, voting rules, legislative and judicial powers, and so on. We cannot, however, rule out the possibility of significant interdependencies between fiscal constraints and other constraints.
The Enforceability of Constitutional Contract
The whole discussion depends critically on the assumption that constitutional choice is relevant, that the behavior of governments as well as the behavior of individuals and nongovernmental entities can be constrained by rules laid down at a constitutional level of deliberation. Without some such assumption, normative argument must necessarily be directed at those who hold political power currently and who are, personally, wholly unconstrained as to the uses to which such power might be put. In such a nonconstitutional model of the political process, there are no formal or legal protections against fiscal exploitation or other arbitrary action on the part of the state. Reformers must “preach” to the powerful, and the hope for moderation rests only with the moral-ethical precepts that the powerful might have come to acknowledge, and to live by, as taught to them by the “preachers” of all ages. In such a model, “limited government” is a contradiction in terms; by its monopoly on coercion, government is by nature unlimited.
The preoccupation of the standard analysis with the distribution of tax burdens “in-period” effectively denies the possibility of agreement among taxpayers. Each identifies his own economic position fully; and the tax reform “game” is strictly zero-sum. In this setting, the only possibility is to call down external norms that specify what a “fair” tax system would be–what tax burden each taxpayer “should” face. And such norms must be external, because the (internal) judgments about the desired distribution of tax burdens (even if tempered by moral or altruistic concerns) held by different individuals are necessarily mutually exclusive.
As we move to the constitutional setting, however, the scope for agreement seems naturally to expand. The presence of extensive ignorance about his future position separates each individual from the identifiable special interest he holds for himself in any in-period setting. In this constitutional setting it becomes possible to apply the generalized contract criterion for ultimate “tax reform.” Particular fiscal institutions can be designated as “good” or desirable because individuals agree that they are desirable. The normative judgments to be applied emerge out of the constitutional consensus itself, rather than from the moral perceptions of one who deems himself close to God.
To be sure, the veil of ignorance may not be complete, and interpretations and predictions about the workings of alternative rules may differ. Agreement may emerge only after much discussion, compromise, and complex trading in alternative constitutional provisions. It could not be expected that everyone or indeed anyone would find any agreed-on constitution “perfect”–but for desirability in our sense; it is enough that the constitution be agreed.
The ultimate test of desirability can of course only be agreement itself. Purely presumptive reasoning alone cannot be expected to define a set of tax rules that would be mutually advantageous–only a set of tax rules that might be predicted to be so. In this sense, the normative conclusions that issue from our discussion are strictly provisional. All that we can be seen as doing is offering a set of tax rules that might form an agenda for the fiscal constitutional convention. This may seem to be a rather modest object! But it is, we believe, both ethically superior to and practically more relevant than the orthodox tax advocacy alternative.
Natural Government
Politics or governmental process is viewed as an institutional setting within which persons and groups interact to pursue their own ends, whatever these might be, and whatever might be the roles or positions persons may take, either as decision makers or as those forced to adjust behavior to the decisions of others. In such a conception, there are no “solutions” to political-governmental problems in any sense akin to those encountered in problems of “science,” as ordinarily understood. And governmental-political institutions are inappropriately modeled if they are interpreted as devices or mechanisms for finding the independently “best” or “optimum” answers or solutions to problems that arise.
Even with the inclusive economic approach to politics, however, the model we describe and use is highly unconventional in its basic assumptions. In the first place, we reject the benevolent, potentially efficient despotism that is the implicit political model dominant in the conventional normative policy framework, in fiscal theory and elsewhere. One may, of course, argue that these variants of the normative approach do not need to incorporate a model of how political processes operate since they are all designed for the purpose of proffering advice to governments, in any shape or form, advice grounded on ethical norms. Nonetheless, there is contained in all of these variants the implicit belief, or faith, that the politicians-bureaucrats, the audience for whom the normative advice is designed, not only have the power to determine governmental-political outcomes, but also are likely to find the ethically based arguments compelling.
In our conception, “government” in the sense of “governing” does indeed exist; and it is viewed as monolithic. We depart from the traditional approach simply by dropping the presumption of benevolence.
And who would want to proffer advice to a no benevolent entity? Our shift of emphasis toward problems of constraining government follows almost directly from the shift of image from benevolence to indifference or even possible malevolence.
Specifically, we assume that the political process, as it operates post constitutionally, is not effectively constrained by electoral competition as such, and that the electoral process can appropriately constrain the natural proclivities of governments only when it is accompanied by additional constraints and rules imposed at the constitutional level. The major idea of this short analyze is to delineate the subset of these other, no electoral constraints relating to the taxing powers that might be selected by the citizen-taxpayer.
At the constitutional stage of decision, the potential taxpayer will prefer that governments be required to announce tax rates before the appropriate behavioral adjustments take place. This generalization of the legal precept against ex post facto legislation becomes especially significant under capital taxation, although it is by no means absent from income-tax considerations.
By Eduart GJOKUTAJ
Author: Eduart Gjokutaj
Article Source: EzineArticles.com
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