National Tax Journal
Vol. 48, no. 1, (March, 1995), pp. 103-12
ON FRIEDRICHHAYEK
AND TAXATION:
RATIONALITY, RULES,
AND MAJORITYRULE
MICHAEL
W. SPICER*
nomic order. Although known and respected by economists for his contributions to economic theory, Hayek was
also well known outside of economics
for his forceful and eloquent advocacy
of the principles of classical liberalism
and free-market economics.
Abstract
- This paper
explores
the implications of the work of the /ate Friedrich
Hayek
for taxation
policy.
Hayek’s
writings on the limits of rationality,
the role
of rules, and the limits of majority
rule
are examined.
It is argued
that Hayek’s
work here provides
general
support
for
broad-based
nondiscriminatory
tax policies but can be interpreted
as cautioning
against
either
radical
or frequent
changes
in tax policy.
His work also makes
clear
the importance
of focusing
on the institutional
context
of tax policy
formulation.
Hayek’s
approach
is compared
here with
that of mainstream
economists
and that
of James Buchanan.
Hayek was by no means prolific on the
subject of taxation, his major contribution here being a rather short and sharp
critique of progressive taxation in his
book The Constitution of Liberty (1960,
pp. 306-23).
However, his political and
social thought has much broader implications for tax policy. Particularly relevant here are Hayek’s writings on the
limits of human rationality, the role of
rules, and the limits of majority rule. This
article explores the implications of this
work for taxation policy and compares
these with mainstream economic thinking. In doing so, the article will deal
with the implications of Hayek’s thought
specifically for taxation policy rather than
his observations about the role of government in society. It is argued here that
Hayek’s thought provides the basis in
general for a critique of discriminatory
taxation, emphasizes the importance of
stability and continuity in tax policy, and
directs our attention to the process by
which our society makes its taxing deci-
INTRODUCTION
The late Friedrich A. Hayek was one of
the most distinguished economists of
this century. Born and educated in Vienna, he became a leader in what is
termed the “Austrian School,” a branch
of economics that, in contrast to mainstream neoclassical economics, stresses
the importance of the variables of time,
change, and information
in the eco*Levm College of Urban Affatrs, Cleveland State Unwersity,
Cleveland, Ohio 44115
103
National Tax Journal
Vol. 48, no. 1, (March, 1995), pp. 103-12
sions. Furthermore, given that there are
some parallels between the Hayekian ap.
preach to taxation developed here and
the approach taken by James Buchanan
(1993), an attempt will be made to
identify some of the similarities and differences in these approaches.
beliefs about the world rather than
facts. Hayek argued thGt such subjective
knowledge cannot exist “as an integrated whole or in one mind” but rather
consists of “the separate and often inconsistent and even cohflicting views of
different people” (Hayek, 1979a, p. 92).
THE LIMITS OF RATIONALITY
The problem of making use of knowledge, which by its veryi nature cannot be
given to a single mind, is what makes
necessary decentralizatibn
of economic
decision making and f&ms the basis for
Hayek’s argument for a market-based
social order or cata//ax$ as he termed it.
A market-based social Order provides opportunities and incentivks for individuals
to acquire and use knobledge
that is
relevant to their activiti?s. It also provides opportunities
and’ incentives for individuals to adjust their different views
of the world to each at/her and to reality. However, the relevdnce of thns problem of acquiring and u$ing knowledge
extends beyond the mairket.
Unlike mainstream economists who emphasize models of utility maximization
and either Ignore or downplay the limits
on human cognitive capacity, Hayek’s
(1948, 1979a) writings stress the limitations of human rationality and the human mind as central to the problem of
economic and social organization.
According to Hayek, because of the complexity of human actions and interactions, individuals potentially face
overwhelming
uncertainty in predicting
the consequences of both their behavior
and the behavior of others. In Hayek’s
view, whatever are the requirements for
an effective social order,, knowledge of
these is never available to a single mind.
No single individual or central authority
can know what information
is required
to rationally plan and direct the use of
resources in society or where that information might be obtained.
In particular, the inhereht limitations on
knowledge available to igovernment
means that government officials seeking
to make decisions will lways face considerable, if not overwhelming,
uncera
tainty regarding the consequences of alternative policy interven~tions in the
market order. Hayek (1973) warned here
that “the more indirect and remote effects (of interventions) Till mostly be unknown” ~(p. 57) and that “many wellintentioned measures may have a long
train of unforeseeable
and undesirable
consequences”
(p. 59). He was critical of
ambitious utilitarian approaches to evaluating actions because they “must proceed on a factual assuflption
of omniscience which is never s;jtisfied” (Hayek,
1976, p. 20). Hayek (1973) was opposed
to the use of governmelnt power to secure partHcular social enus or to serve
the interests of particuldr individuals or
groups because of “the necessary and
Irredeemable ignorance on everybody’s
Much of the knowledge necessary for
the functioning
of an effective social order comes into existence, according to
Hayek (1948), only as individuals seek to
discover facts that may be to their advantage in particular situations. In other
words, such knowledge is not given, but
can only be discovered as individuals
work on the particular tasks that they
have undertaken. This knowledge tends
often to be based on experience and
practice rather than scientific analysis. It
is, according to Hayek (l948), a “knowledge of people, of local conditions, and
of special circumstances” (p. 80). Much
of it is also inherently subjective in nature and consists more of opinions and
104
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National Tax Journal
Vol. 48, no. 1, (March, 1995), pp. 103-12
ON FRIEDRICH HAYEK AND TAXATION
ments about how individuals will respond to higher taxes on income and
energy. Some economists see the package as necessary to correct past inequities in taxation policy, as useful in curbing energy consumption,
and as
essential to the reduction of the deficit
and the promotion of long-term growth
and prosperity. Others see the package
as damaging individual incentives to invest, promoting the use of tax avoidance
schemes, doing little to curb the longrun deficit, and leading to economic
stagnation. Such controversy exists because of our inevitable lack of knowledge as to how millions of individuals
will make their buying and selling
choices in the face of taxation policies.
Hayek’s writings would suggest that we
can never really know beforehand the
specific effects of taxation policies because we can never have or use the
knowledge that exists in the minds of
buyers and sellers.
part of most of the particular facts
which determine the actions of all the
several members of human society”
(P. 12).
Furthermore, according to Hayek, while
the science of economics can help in understanding the general nature of a
market-based social order, its ability to
assist in predicting the effects of specific
policy interventions in particular situations within that order is inevitably limited by the fact that we cannot know all
of the relevant facts in those situations.
Even what appear, then, to be marginal
interventions may have significant unknown and potentially harmful consequences. According to Hayek (1973),
given the inherent complexity of marketbased social orders, “we will never be
able to determine more than the general
principles on which they operate or to
predict the particular changes that any
event in the environment
will bring
about” (p. 63). Economics cannot provide a “knowledge
of the particulars of
a concrete situation, which it does not
and cannot possess” (pp. 63-4).
Hayek’s ideas here strongly suggest the
difficulties of using taxation policies to
intentionally encourage particular types
of economic behavior or to favor or
penalize particular groups of individuals
in society. If the effects of such policies
upon human behavior depend upon
knowledge that we can never have, then
their effects are inevitably uncertain and
may in fact even be inconsistent with
the objectives we seek to achieve. Given
limited knowledge, discrimination
in taxation then, whether to promote goals of
efficiency or equity, must have unforeseen and unforeseeable
consequences.
The foregoing then would seem to provide a plausible argument for the use in
general of nondiscriminatory
broadbased taxation. By attempting to avoid
discriminatory tax policies, governments
may be better able to avoid the unforeseen and potentially harmful outcomes
that result from such policies.
The foregoing has particular relevance
for taxation policies. Taxation policies
are, after all, especially susceptible to
uncertainty because their effects depend
upon the unpredictable
behavior of millions of individuals. As a reading of most
texts in public finance will demonstrate,
there is considerable debate among
economists about who bears the burden
of certain taxes; about how responsive
or elastic are work effort, consumption,
savings, or risk-taking with respect to
changes in tax policies; and about the
effects of fiscal policies on aggregate
demand, national income, and unemployment. Different economists interpret
the evidence in different ways.
Genuine controversy, for example, surrounds the effects of President Clinton’s
1993 tax package because of disagree-
In this sense, whatever
105
their theoretical
National Tax Journal
Vol. 48, no. 1, (March, 1995), pp. 103-12
merits, the simple old-fashioned
tax principles of horizontal tax equity and neutrality, while not discussed explicitly by
Hayek himself, would seem to provide
helpful guides to tax policymakers. By
horizontal equity, what is meant here is
simply the equal taxation of taxpayers
with the same ability to pay, as measured in financial terms. This does not
mean that tax burdens should be arranged so as to secure any type of
equalization of sacrifice of or IO!5 of
economic welfare. Such utilitarian notions of equalizing sacrxfice among taxpayers presuppose a knowledge of individual tastes and preferences that, from
a Hayekian perspective, simply cannot
exist. Indeed, Hayek himself was explicitly critical of such1 utilitarian approaches
to taxation. He argued that the use of
utility analysis in the theory of taxation
was “a regrettable mistake” and that
“the sooner we can rid ourselves of the
confusion it has caused, the better”
(Hayek, 1960, p. 309).
ing aggregate social utility through
discriminatory tax poliiies, would seem
to require considerabl$ more information
about the effects of p&-ticular taxes than
is likely to exist in any one mind or
group of minds.
Principles of horizontall equity and neutrality are seen as desi/-able then, not on
any utilitarian grounds/ but rather simply
because the use of suth principles to
guide tax policy tends ~to discourage the
use of discriminatory tgx policies and
may, thereby, limit unf/oreseen and potentially harmful outcomes. At the same
time, however, Hayek’$ writings may be
inteirpreted as providin
a warning
against radical change in taxation polICY, whatever the obje :gtives of such radical changes might be. iln this regard,
large changes in tax pglicy, even when
directed toward broadjbased
nondiscrim,Inatory taxation, may de argued to have
unforeseen and possib y undesirable consequences. Tax reform I then directed at
broadening the tax baje should perhaps
proceed incrementally pver time rather
than all at once. I do dot, of course,
claim that Hayek him&If would have endorsed this particular argument. However, the argument is jonetheless consistent with his views on the limits of
human knowledge.
Haj/ek’s central message was, after all, a critique of those
who believe that we h+ve the knowledge to design human institutions anew
on the basis of human, reason, and this
surelly must include the/se who would
seek to design tax instiitutions, however
laudable their intention~s. He argued that
“all progress must be ased on tradition” and that we “ca 5:I only tinker with
its products” (Hayek, 197913, p. 167).
Neutrality means here that, insofar as IS
possible, taxes should be uniform across
different economic activities and should
not interfere in market decision making.
Specifically, we should avoid making
particular activities’ more or less financially attractive to individuals as a result
of taxation. This does not mean that tax
burdens should be deliberately arranged
so as to minimize losses in social welfare. Such a task would again presume
too much knowledge in terms of the
possible effects of particular tax policies.
In this regard, had he written on the
subject, Hayek might well have been
quite critical of more contemporary
optimal taxation theorists, who argue that
discrimination
in taxation may in fact be
desirable as a meains to minimize the
losses in economic efficiency arising
from taxation.’ From a Hayekian perspective, the practical application of optimal taxation theory, aimed at maximiz-
THE ROLE OF RULES
The second important area of Hayek’s
work concerns the role1 of rules in a social order. The limits of, our knowledge
and the resulting uncerkainty, in Hayek’s
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National Tax Journal
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ON FRIEDRICH HAYEK AND TAXATION
view (1973), lead to the development of
a system of rules that govern the interaction of individuals and that limit the
harm that individual actions can create
for others. The actions of all individuals
in a free society, including the actions of
governments, must, according to Hayek,
be constrained by what he terms “rules
of just conduct” or the Rule of Law.
These consist of norms or rules of social
interaction that have developed and
have been applied by communities over
the long run. Such rules have been developed as a means of coping with uncertainty and serve an evolutionary function in helping communities survive.
They are, as Hayek (1973) noted, “adaptations to the impossibility of anyone
taking conscious account of all the particular facts which enter into the order
of a society” (p. 13) and “have come to
govern human actions because actions
in accordance with them has proved
more successful than those of competing individuals and groups” (p. 18).
tionality discussed earlier. However, to
properly serve their purpose, rules of just
conduct must apply not only to the actions of individuals but also to those of
government officials.
Particularly important in this regard are
rules that limit the coercive powers of
government to the application of general rules applicable to all. Hayek
(1979b) argued that the only legitimate
basis for “coercion by the supreme authority refers to the enforcement
of general rules of conduct equally applicable
to all” (p. 135). In other words, Hayek
believed that coercive acts by government should be restrained by rules providing for the equality of individuals under the law. Without general rules
applicable to all, in Hayek’s view, government actions will inevitably become
arbitrary. Even if discrimination
in government action is initially based on benevolent motives and restricted to those
who need or deserve it, Hayek argued
that such discretion will inevitably be
used to the advantage of any group that
can bring to bear its influence or power
against citizens. As Hayek (1979b)
noted, “to break the principle of equal
treatment under the law even for charity’s sake inevitably opened the floodgates to arbitrariness”
(p. 103).
Rules of just conduct reduce uncertainty
by defining the range of permitted actions that individuals may take toward
others. Their purpose is, as Hayek (I 973)
noted, “to prevent as much as possible
. . . the actions of different individuals
from interfering with each other”
(p. 108). In doing so, rules of just conduct are not concerned with the attainment of what some might see as “socially just” outcomes but rather simply
define a domain or a sphere of actions
for individuals.
Hayek (1960) also believed strongly that
rules must be “known and certain” (p.
208). Indeed, his argument for restricting the discretion of government
by
rules is based in significant part on the
uncertainty that changes in governmentimposed rules can impose upon the private sector. He noted that “if the actions of the state were to direct the individual’s actions so as to achieve
particular ends, its action would have to
be decided on the basis of the full circumstances of the moment and would
therefore be unpredictable”
(Hayek,
1944, p. 76). According to Hayek
(1944), “the more the state plans, the
Acceptance of these rules of just conduct, particularly rules of property and
exchange, has, according to Hayek, not
only increased the liberty of citizens but
also has made possible the evolution of
a modern market-based economic order.
Without the relative certainty provided
by such rules, much of our present
market-based economic activity could
simply not exist given the limits on ra107
National Tax Journal
Vol. 48, no. 1, (March, 1995), pp. 103-12
more difficult planning becomes for the
individual”
(p. 76). He further argued
that “There is probably no single factor
which has contributed
more to the prosperity of the West than the relative certainty of the law which has prevailed
here” (Hayek, 1960, p. 208).
legislation so that it is now higher than
it was prior to 1981.
These frequent and inconsistent changes
in tax laws also make ~clear the relevance
of Hayek’s arguments ~concerning the
certainty of rules or laws. Given the
rapid and zigzag natuje of tax law
changes, it seems indi$putable that uncertainty regarding taxi laws has increased and that the ability of private
citizens and businesses to plan therr financial affairs has been impeded. The
need for certainty in t x laws was apprea
ciated by Adam Smith~(1937) but tends
to be downplayed
by contemporary
public finance economists.’ Hayek’s work on
the role of rules in society serves then as
a useful reminder of the importance of
this canon and of the need for would-be
tax reformers to temper any desire for
equity and efficiency in taxation with a
concern for stability and predictability.
Hayek’s emphasis on the importance of
rules of conduct providing for equality of
treatment of citizens by the law, as a restraint on arbitrary and discriminatory
government actions, forms an important
and perhaps key part of his critique of
progressive income taxation (Hayek,
1960). According to Hayek (1960) “in
the case of progression, the so-called
principle adopted is no more than an
open invitation to discrimination”
and
“must become the pretext for pure arbitrariness” (p. 31 4).2 It also, however,
provides a more general argument for
the use of broad-based and nondiscriminatory taxation and suggests then that,
whatever the theoretical advantages of
tax discrimination
in particular cases, tax
policymakers may nonetheless be well
advised to follow old-falshioned norms of
horizontal equity and neutrality, simply
because pursuit of these norms tends to
discourage arbitrariness in tax policy
making.
THE LIMITS OF MAJOIJITY RULE
If the foregoing analysis is correct, the
pursuit of tax policy w uld seem to require coinsiderable wis om and restraint
on the part of those ,s”ho would make
tax policy. In this regard, Hayek’s (1960,
197!3b) writings on de ocracy and majority rule are very rele 7 ant but give little
cause for optimism. Hayek argued that
governments elected by majority rule
cannot be relied upon to develop or act
according to rules of just conduct and,
indeed, can be expect ‘d to enact discriminatory and arbitra 4 y coercive measures. According to Hayek, elected leaders in most western democracies
including the United Stptes have lost
their ability to establish1 coercive measures on the basis of rules of just conduct, since they must use them to serve
the interests of the groups whose support they cannot afford to lose. Hayek
noted that “Corrupt and at the same
time weak,
. . the governing majority
must do what it can do to gratify the
Certainly, the frequent and inconsistent
changes in taxation policy across the
past 15 years or so would seem to provide ample evidence of the inevitable arbitrariness of tax discrimination.
Congress in 1977, for example, lowered the
effective tax rate on capital gains and
lowered it again in 1981, but then
raised the rate in 1986 as a result of tax
simplification.
Furthermore, while considerably reducing the tax preference accorded to capital gains in 1986, Congress in subsequent legislation has again
effectively widened the capital gains tax
preference. Similarly, the corporate income tax burden was cut sharply in
1981 and then increased in subsequent
108
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National Tax Journal
Vol. 48, no. 1, (March, 1995), pp. 103-12
ON FRIEDRICH HAYEK AND TAXATION
wishes of the groups from which it
needs support, however harmful to the
rest such measures may be” and that “it
is wholly incapable of pursuing a consistent course of action, lurching like a
steamroller driven by one who is drunk”
(Hayek, 1979b, p. 11).
tled to enact any law that it pleases and
that, as a result, majority rule has degenerated into a system of plebiscitary
dictatorship.
Majority rule is particularly subject to
abuse where majority coalitions can
make decisions about tax shares and can
shift the cost of financing government
goods and services that they desire to
others. Hayek (197913) argued that the
determination
of tax shares by majority
rule undermines rational decision making
by encouraging
a belief that “the other
fellow will pay for it” (p. 52) and, furthermore, “provides a built-in inducement to irresponsible and wasteful expenditures”
(p. 53). It also leads to a
“built-in bias of the existing institutions
towards the expansion of the machinery
of government”
(p. 53). Whether or not
Hayek’s argument that majority rule
leads to irresponsible and wasteful expenditures and to excessive government
is accepted, it seems quite plausible to
suggest that it has fostered the growth
of tax discrimination
in the form of tax
preferences or tax expenditures. Since
World War II, there has been a trend toward a proliferation
of income tax preferences and an erosion of the tax base.
Even after the 1986 Tax Reform Act and
subsequent legislation, less than half of
what economists term comprehensive
income is taxable under law. Charles McLure, closely involved in preparing the
Treasury Department’s tax reform proposal, and George Zodrow (1987) have
argued that despite the achievements of
the 1986 Tax Reform Act, “it is also
amazing that a better reform package
could not be passed” (p. 57).
Majority rule, in Hayek’s view, is no
longer an instrument for the expression
of a common majority will but rather
has become an instrument by which various groups in society can use political
power to advance their interests at the
expense of others. Hayek (1979b) argued that majority rule results in “handing over unlimited power to a group of
elected representatives whose decisions
must be guided by the exigencies of a
bargaining process in which they bribe a
sufficient number of voters to support
an organized group of themselves numerous enough to outvote the rest” (pp.
4-5). He further noted that majority rule
has become a means of “distributing
the
booty which can be extracted from a
dissident minority” (197913, p. 139). It
should be emphasized here that Hayek
did not see the problem of majority rule
as simply the consequence of the policy
manipulations
of government officials.
Such manipulations
were inevitable,
from Hayek’s perspective, given the inability of government officials to resist
the political demands generated by a
system of relatively unrestrained
majority
rule.
Hayek was not opposed to democratic
processes but rather to relatively unrestrained majority rule. Seeming to echo
John Locke, he believed that majority
rule “serves as a protection against despotism and tyranny . . . a convention
which mainly serves to prevent harm”
(1979b, p. 133). However, he believed
that the classical liberal notion that the
laws enacted must be acceptable to the
majority has become distorted into the
modern notion that the majority is enti-
On the basis of Hayek’s thought, proliferation of discriminatory tax preferences
can be seen as a logical outcome of a
bargaining process in which elected officials are forced by electoral pressures to
exercise tax discrimination
to bribe a sufficient number of voters to form an or109
National Tax Journal
Vol. 48, no. 1, (March, 1995), pp. 103-12
ganized majority. The relative ease with
which governments under majority rule
can grant tax preferences considerably
facilitates the building of exploitative
and arbitrary majority coalitions. Perhaps
not surprisingly then, Hayek saw constitutional limits on majority rule as a necessary step toward better public policy,
including better tax policy. He suggested
that rules having to do with tax shares
should be determined by a special
elected legislative assembly, insulated
from the pressures of normal majoritarian politics, so that no one institution of
government would have the power to
simultaneously
determine the level and
distribution of taxation (Hayek, 1979b,
pp. 105-27). Such restraints on majority
rule were necessary in Ihis view to restrain arbitrary exploitation of minorities
by the majority. Hayek’s emphasis on
constitutional
limits on majority rule as
the means to promote better tax policy
is clearly outside the mainstream tradition of taxation theory, but has close
parallels with the thinking of Knut Wicksell (1896) and also contemporary
public
choice economists such as James Buchanan (1975, 1993).
COMPARISONS
APPROACH
developed above and his opposition to
progressive taxation is consistent with
Hayek’s own expressed views on the
subject. Furthermore, Buchanan’s analysis of the inevitable arbitrariness of majority rule, when applied to tax share decisions, and his focus $n the rules or
institutional processes ~governing tax policy making fit well with the Hayekian
approach. Finally, it sepms clear that if
we already had a policy, operating
within a constitutional
requirement that
taxes be general, this would do much to
solve the problems associated with discriminatory taxation discussed in this paper.
However, Hayek’s views on the limits of
rationality suggest perhaps a need for
greater (caution than egpressed by Buchanan regarding cons itutionally mandated tax reform. lnde ! d, in advancing
his own proposals for tonstitutional
reform, Hayek (1979) himself was characteristically cautious, observing that his
purpose here was “not to propose a
constitutional
scheme for present application” 1:~. 107). In th$ regard, a Hayekian approach to taxati n might at least
raise questions about t\ e desirability of
the type of wholesale fax reform proposed by Buchanan, thee full consequences of which must inevitably be uncertain.3 It may be argved here that
Buchanan’s own propqsal, which he advanced some years agd, for the use of a
qualified majority rule 4or tax poilicy
making (Brennan and guchanan, 1981),
may have more merit from a Hayekian
perspective. A constitul/ional requirement, for example, that changes in tax
laws receive a three-fifths majority for
approval would not neqessitate radical
modification
of existing tax policies but,
by making tax law changes more difficult, would still have ttie virtue of inhibiting future efforts at t+x discrimination
by legislatures and of dromoting greater
stability in tax laws. Hakek might not
WITH BUCHANAN’S
In light of the par,allels between public
choice and Hayek’s writings, it is useful
to compare, at this point, the Hayekian
approach to taxation discussed here with
the constitutional
approach developed
by James Buchanan and discussed by
him recently in this journal (Buchanan,
1993). Buchanan argues here for a constitutional requirernent that taxes be
general and nondiscriminatory
on the
grounds that, without such a requirement, majoritarian politics must inevitably lead to decisions that promote economic inefficiency. Buchanan’s advocacy
here of nondiscriminatory
tax policy
making is consistent with the approach
110
I
ON FRIEDRICH HAYEK AND TAXATION
necessarily have endorsed this particular
proposal, but it is consistent with his
views on the limits of rationality.
Conclusion
The approach to taxation developed
here, then, on the basis of my particular
interpretation
of Hayek’s thought is
clearly quite different from that taken by
conventional tax economists and, while
there are strong similarities, is somewhat
different from James Buchanan’s constitutional approach. It suggests that the
idea, promoted by old-fashioned
canons
of horizontal equity and neutrality, that
tax policy should seek to minimize discrimination among taxpayers may still
have considerable merit as a guide to
tax policy in that it serves as a protection against the limits of our knowledge
and against arbitrary tax discrimination.
Perhaps equally important, Hayek’s work
would seem to caution, though, against
radical or frequent changes in taxation
policy, even when directed toward desirable goals, and emphasizes the need for
predictability or certainty in tax policy.
Finally, Hayek’s work suggests that we
focus on the rules or institutional
processes by which we make tax decisions
but be careful, perhaps, not to rush into
radical fiscal constitutional
reform.
ENDNOTES
’ For an excellent review of this approach,
compared and contrasted
with others, see Hettich
and Winer (1985).
’ It may be asked here why Hayek favored even
a proportional
income tax given that such a
tax imposes a heavier burden on those with
higher incomes and, so, is also discriminatory
in a sense. If one is opposed to tax discrimination, then why not use a poll or head tax?
Hayek’s argument
for income taxation seemed
to rely on the benefit principle. According
to
Hayek (1960). “almost all economic activity
benefits from the basic services from government
. and a person who commands
more
of the resources in society will also gain proportionately
more from what the government
has contributed”
(p. 316). Also, Hayek (1960)
believed that the rule of proportionality
in in-
National Tax Journal
Vol. 48, no. 1, (March, 1995), pp. 103-12
come taxation “provides a uniform principle
on which people paying differing amounts are
likely to agree” (p. 315).
3 I should note here that my intent is not per se
to criticize Buchanan’s
approach to taxation
policy, for which I have great respect, but
rather to suggest a tension between his more
radical approach to constitutional
fiscal reform
and the more cautious approach to reform
suggested
in much, if not all, of Hayek’s writings. Buchanan, while clearly an admirer of
Hayek’s thought,
seems aware of this tension
himself and has wntten about it on several occasions (Buchanan,
1977; Buchanan,
1986;
Buchanan,
1991).
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James M. Freedom in Constitutional
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