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Murdoch University Electronic Journal of Law |
| Author: | Adam Bandt Student, School of Law, Murdoch University |
| Issue: | Volume 1, Number 4 (December 1994) |
Introduction
Looking at the income tax system is a social process. The observer brings along her/his social, political,
ideological, economic and gender assumptions to the ITAA[1] and judges it
accordingly. Further, the ITAA plays
an immense part in distributing society's resources, and thus it is a
thoroughly social institution. Our tax
system should be judged with reference to an ideal; one of the best ways
to understand what 'is' is to compare it with what 'is not' and what 'might
be'. However, the concepts of
equity, efficiency and simplicity do not provide the theoretical bases for
doing so. To fully imagine an ideal tax
system there would need to be a critique of existing economic and social
relations, as well as a suspension of 'common-sense' notions of 'equity'
and 'fairness': as Gramsci
says[2], hegemony produces and thrives on 'common-sense'. After a look at the 'EESy' criteria, a
more critical approach is outlined and it is suggested that looking at the
current tax system is a 'SIMPLe' process. The essay then concludes by arguing that the ideal tax system would
be 'RED' (acronyms explained later!).
1. EESy
1.1 Equity
What is equity? Despite its 'social
justice' connotations, it need not be a very radical notion. Much writing on equity and tax[3] centres around
'horizontal equity' (broadly, that like cases should be treated alike and
should be treated consistently and impartially) and 'vertical equity' (a
notion that there should be some kind of 'fairness' relationship between
people on different incomes).
On first glance, the concept of 'horizontal equity' accords with 'general'
concepts of fairness and, perhaps, social justice. Why should someone who earns $10 000 as income from capital
gains not be made to pay the same tax as a PAYE worker on the same
wage? This notion of equity is tied
up very closely with notions of equality and fairness[4]. It is essentially a procedural or
formal notion - it is a method for making decisions, and provides no
substantive criteria for deciding which cases are 'like' nor when to
appeal to 'equity'[5]. The notion of an
abstract, impartially applied procedural rule such as this has been seen
to have many benefits for jurists:
it accords with 'intuitive' notions of fairness, and individuals
will participate in social interaction if they feel that the rules are
'fair'[6]. 'Vertical equity' is far
more vague: some may feel that it
is satisfied by a flat rate tax, while others may feel that this would
totally contravene the point of vertical equity.
This rough sketch reveals some problems with 'equity'. First, notions of equity and fairness
are so contested that almost anyone could see their tax system as being
'equitable'. Most sides see at least
the need to pay lip service to the concept of equity - remember that old
chestnut 'restraint with equity'[7] suggesting that the concept need not
have any kind of 'social justice' connotations.
Secondly, the approach is ahistorical.
Justice as equality of treatment is a thoroughly bourgeois
notion. The early bourgeoisie demanded
that they be treated as free owners of commodities with equal rights as traders
to exchange their commodities on the basis of laws that were equal for
them all[8]. This notion of formal
equality (the assumption that every human being counts as one human being
only, in that so far as the common thing that human beings possess is
their humanity, no-one possesses more 'humanity' than anyone else)
necessarily produces substantive inequality[9].
"Right can by its very nature only consist in the application of an equal standard;
but unequal individuals (and they wouldn't be different if they were not
unequal) can only be assessed by an equal standard in so far as they are
regarded from a single aspect, from one particular side only ... [E.g. in
an employment contract] they are regarded only as workers and nothing
more is seen in them, everything else being ignored. Further, one worker is married, another not; one has more
children than another, and so on.
To avoid all these defects, right, instead of being equal, would
have to be unequal."[10]
Thirdly, because common-sense notions of horizontal 'equity' are predominantly
procedural in nature, the substantive guidelines of when to be
'equitable' and what the substance of that decision should be take the existence
of current social structures for granted.
Some people may deplore the inability to deduct childcare
expenditure, but the solution is invariably a piecemeal legalistic
one: pass a law which rectifies this
situation, thus satisfying the equity requirement. Rarely is there a questioning of why childcare is still
predominantly the moral and financial responsibility of the family (or in
most cases the mother), and not a 'public' duty. This is all assuming that there is something
'inequitable' about not being able to claim childcare expenses: notions of 'justice as fairness' do
not even require us to make that step.
1.2 Efficiency
Efficiency is essentially defined in neo-classical economic terms as that which
does not distort the market. It takes
for granted the whole capitalist economic infrastructure and assumes that
the market should be left to provide its optimum output thus totally
glossing over or ignoring underlying tensions between capital and
labour[11]. Cnossen[12] in an article on share taxes, argues that
corporations are the business form in which 'capital and labour are
combined for productive, mutually beneficial, purposes', and that in
imposing a tax on corporations (as opposed to shareholders) we may be
distorting 'the most efficient allocation of capital.'
Despite his claim to objectivity, Cnossen is making a political statement. This concept of efficiency reinforces a
system where a select few appropriate the surplus value of the labour of
many; it gives corporations and those who control them carte blanche to do
as they will with social resources; it perpetuates exploitation of
'developing' countries by multi-national corporations seeking inexpensive
labour[13].
1.3 Simplicity
In its Draft White Paper, the Labor government decided that, for ease of conveying
meaning, for reducing compliance costs and for avoiding unnecessary
litigation, the tax system should be as simple as possible[14]. However, the State must still provide
'incentives' to those with capital:
one of the benefits of doing so through tax concessions (creating
a complex tax system) rather than direct grants is that it conveniently
'hides' subsidies[15]. There is thus a contradiction
which hampers any 'true' simplicity.
Further, the allowance of deduction of compliance costs under s.
69 will benefit those who have finance to seek professional advice, or
corporations who can set up special tax advice units. It does not follow that simplicity will reduce
compliance costs, nor that it will avoid unnecessary litigation, for
these issues have a class aspect - profit-oriented companies must get an
edge over competitors, and if this means employing tax lawyers to find loopholes
in legislation or to effectively hide their costs, then so be it[16].
2. Having a Critical Look at the Tax
System is SIMPLe
2.1 SI - Self-Interest
The ITAA is premised on the notion that tax-payers are all rational self-interest
and income maximisers. Most of its
provisions[17] make no attempt to address the effects that class or
gender have an ability to, for example, afford practitioners who can
create complex income-splitting schemes:
it works on an assumption that all rules can apply to all people
in a like manner. Further, it
positively encourages people to pursue profit-making (e.g. s. 51 allows
deductions for expenses incurred in the course of carrying on a business
or producing assessable income). The
assumption that we are all naturally self-interested individuals not only
ignores the impossibility of giving an explanation of an individual outside
of a relational[18] or social context[19], but it is also an androcentric[20],
western[21] view of the self.
2.2 MP - Means of Production
The ITAA, as an integral part of the capitalist state, reflects and supports
the current means of production. At its
core is the encouragement of business:
s. 51. Interpretations of its
sections have insisted on the strict liberal split between work and
'hobbies', between public and private[22]. Even the tax on capital gains reflects a desire to
encourage investment in more 'productive' areas, and it doesn't apply to
motor vehicles or principal residences, giving greater real benefit to wealthy
people than workers[23]. Why does the
ITAA take the existence of companies for granted? Why does the dividend imputation system,
being a $500 million dollar imposition on the revenue of the country to
subsidise 'incentive' and 'investment', essentially 'redirect the tax
burden away from the ruling class'[24]?
Why do a large number of Australian companies still only pay
between one and ten percent of their declared profits as income
tax[25]? Inequality and exploitation
inherent in our class society is reflected and supported by the
State. Thus, Paul Keating on the
Labor Government's dividend imputation scheme:
[26]
"It will restore the position of the stock market as mobiliser of investment
funds and reduce the previous bias in favour of corporate debt finance
over equity; it will mean that
entrepreneurs trying to get new businesses off the ground should find it
easier to raise equity finance: it will make investment in these
enterprises more attractive for investors; it will improve the climate
for productive investment and enhance economic growth for Australia; and
it will provide increased incentives for all Australians to participate
in the ownership of Australian companies by significantly reducing tax on
dividend income."
2.3 LE - Legalism
Conflict arising over the implementation of the ITAA is adjudicated by judges
and argued by lawyers. Profoundly
social questions such as the redistribution of wealth within society get
reduced to issues of interpretations of subsections, and social theorists
rarely get an overt look in.
Further, many judges still work under the (mis)apprehension that
there are 'rules' for determining, for example, the distinction between a
business and a hobby, or between income and capital. This misapprehension is rooted well within the liberal
legalism which sees Law as being a body of abstract rules applied to
individuals in specific cases to give a right answer. Such an approach is unable to adequately address
conflicts or issues which arise as a result of a person's class, gender
or race: it neglects the structural
bases of the law and does not put the operation of the law into any wider
social context[27]. It represents
an epistemological positivism which naively insists on a strict break between
fact and value and argues that cases must be decided on their facts, and
privileges 'objective knowledge' over 'subjective emotion'. [28]
3 RED:
The Ideal Tax System
3.1 R - Revolutionary
Looking at an ideal tax system is revolutionary in two senses. First, it requires the observer to
suspend commonsense notions of 'equity', 'fairness' and 'human nature'
and look at them critically. What are
the philosophical and economic assumptions underlying these
concepts? Are they peculiar to a
certain culture, nation or time in history?
What power interests are served by holding these assumptions? Just as we challenge tax laws, we must
also challenge our own assumptions about society. The second sense of 'revolutionary' is that
an ideal tax system should go along with an ideal society. This would be one where material oppression
is ended and the competitive spirit of capitalism is not elevated to
'human nature': a new means of
production, and just as importantly, of resource distribution. [If, in conceptualising an 'ideal tax
system' we remain stuck within the parameters of capitalist, masculinist
ideology, we are going to see 'inequities' and 'inequalities' arising
every day.]
3.2 E - Empathic
An ideal tax system should be predicated on a notion of self which goes beyond
narrow, individualistic conceptions.
From the moment that we are born (indeed, even before then) we are
dependent on others, and it is impossible to talk about 'an individual'
and ascribe her/him any characteristics without reference to a social
context. In fact, it is only
social relations that enable us to make sense of the concepts of 'individuals'
and 'society'[29]. This is a crucial
factor: an ideal system of distributing
resources between people should take into account the peculiar situation
amid needs of an individual or group of individuals. From each according to their ability, to
each according to their needs.
Further, this will involve bringing emotion 'back into' tax. Some may say that it never left: Barwick CJ and Kitto J have been known to
get fairly passionate about business tax deductions. Nonetheless, an ideal tax system would
not work under the misapprehension that all 'non-rational' knowledge
should be excluded from issues of distribution of resources. This would free us up to make decisions in
certain cases without feeling like we needed to stretch or make an
exception to 'The Rule'. Insisting on 'pure' rationality can lead to some
absurd decisions. It may also
mean a different, less adversarial forum for deciding cases; one which
allowed for discussion and 'values' without the current strictures of
court proceedings and 'legal reasoning'.
3.3 D - Democratic
An ideal tax system would be democratic both in its substance and in its administration. In the ideal society (free with every ideal
tax system) there would be no 'competition' which created and masked
exploitation. All members of the
society would have control over the society's resources, and thus the
content of a tax system would be decided by all people. The administration of an ideal tax system
would also be democratic. It would mean actually following up and
ensuring the payment of tax by those owning companies. It would also require a recognition that
rules and laws are things made by people:
they are not some kind of God-given formula which we should reify
and all feel subordinated to. We must
rid ourselves of this kind of 'fetishism' and refuse to allow the words
written by certain people to cast loose of their moorings and float into
the realm of the sacred[30]. This would
mean local communities and ordinary people deciding how to distribute
society's goods, and a refusal to be in awe of the whims of a few. Obviously, some co-ordination and consistency
would be needed, but we must move beyond 'simplicity', which reflects
powerful business groups' calls for greater certainty in investment[31],
and towards democracy.
Notions of equity,
efficiency and simplicity do not of themselves challenge the relations of
the existing means of production, and as such they overlook the causes of
the 'inequities' that they are supposed to remedy. Taking a look at the ITAA is relatively
SIMPLe, and leads to the conclusion that judging an ideal tax system is a
matter of transcending commonsense conceptions such as 'fairness' and
looking critically at the operations of corporations and members of the
ruling class. This leads us to a
RED approach: a truly ideal tax system.
4. Conclusion
NOTES
1. Income Tax Assessment Act 1936. All references to sections are to sections
in this Act.
2. See Simon, R, (1982) Gramsci's
Political Thought pp. 63-64.
3. Cf. Boucher, T, (1991) "The
Simplification Debate: Too
Simplistic?"
26(5) Taxation in Australia (Sydney), 277.
4. Pateman, C., (1981) "The
Concept of Equity" in Troy, P. ed., A Just Society, p. 22.
5. Id.
6. Rawls, J., (1976) "Justice as
Fairness" in Blowers, A., and Thompson, G., eds., Inequalities,
Conflict and Change; Castallena, R., (1987) Justice and Economic
Life: An Interpretation of Marx's
Critique of Capitalism, 83-88, 90.
7. Pemberton, J., (1988) "The End
of Economic Rationalism" Australian Quarterly8 Winter 1988, p. 63.
8. Marx, K., in Selsman, H. &
Martel, H., (1987) Reader in Marxist Philosophy.
9. Hirst, P., (1976) "Political
Philosophy and Egalitarianism" in Blowers, A., and Thompson, G.,
eds., Inequalities, Conflict and Change.
10. Marx, K., (1875), "Critique of the Gotha Programme" in Bottomore,
T, and Rubel, M, eds., (1963) Karl Marx:
Selected Writings in Sociology and Social Philosophy.
11. See, e.g., Scott, J., (1985), Corporations,
Classes and Capitalism, pp. 21-27; Marx, K. in Buttomore & Rubel,
eds., supra no.
10, pp. 102-117, 137-220.
12. Cnossen, S., (1984),
"Alternative Forms of Corporation Tax", 1(3) Australian Tax
Forum, pp. 253, 260-1, 273-5.
13. Corporations are not democratically
owned. Nor are they socially responsible: See, e.g., Connell, R.W., (1977), Ruling
Class, Ruling Culture), especially Chs 4 & 10; Donaldson, M (1989),
"Bondmania" Arena
88, p. 26 for an outline of Alan Bond and his companies' atrocities in Chile.
14. Draft White Paper, Reform of the
Australian Tax System (1985), p.
15.
15. Passant, J., (1990, "Tax: A Look at Some of Labor's Changes",
19(3) Federal Law Review pp. 316-317.
16. Ibid, p. 318.
17. Provisions outlining marginal tax
rates excluded.
18. Kerruish, V., (1991) Jurisprudence
as Ideology, Ch 2.
19. Bhaskar, R. (1979) "On the
Possibility of Social Scientific Knowledge" in Mepham, J (ed), Issues
in Marxist Philosophy; Voluntary 2)
20. Smart, C (1990), "Law's Power,
the Sexed Body and Feminist Disclosure" 17(2) Journal of Law and
Society, p. 203; MacKinnon, C (1983) "Feminism, Marxism, Method and
the State: Toward Feminist Jurisprudence"
Signs (Summer 1983), p. 635; Eisenstein, Z (1988), The Female Body and
the Law.
21. See eg. Capra, F., (1982) The
Turning Point.
22. Cf. Freeman, A., & Mensch, E.
(1987), "The Public/Private Distinction in American Law and
Life" 36 Buffalo Law Review, p. 242; Collier, R. (1991),
"Masculinism, Law and Law Teaching" 19 International Journal of
the Sociology of Law, p. 446.
23. Passant, J., op. cit., pp. 312-313.
24. Ibid, p. 314.
25. Ibid, p. 320.
26. House of Representatives Debate
1987, Voluntary 154, 1945 (2 April
1987), quoted in Passant, op. cit., pp. 313-314; see too Draft White Paper,
supra, n 14, pp. 1-3.
27. Cassells, J., and Maloney, M.,
(1988), "Critical Legal Education:
Paralysis With a Purpose"
4 Canadian Journal of Law and Society, at pp. 112-120; Halpern,
S., (1982), "On the Politics and Pathology of Legal Education"
32 Journal of Legal Education; Collier, R., (1991), supra n
22, p. 429.
28. Cassells, J. and Maloney, M., ibid,
pp. 112, 115.
29. Kerruish, V., (1991), op. cit.
30. Ibid, Ch 4; Ch 7.
31. Passant, op. cit., p. 320.