Search Books

  • Search Full Site
  • Display Book Titles
  • Display Book Paragraphs
12 paragraphs found in the 1 Book listed below
The Power to Tax: Analytical Foundations of a Fiscal Constitution; Brennan, Geoffrey and James M. Buchanan
12 paragraphs found.
Ch. 1, Taxation in Constitutional Perspective
Both Lord Hailsham and Professor Hayek have recently argued strongly to the effect that the presumption is invalid. See Lord Hailsham, The Dilemma of Democracy (London: William Collins Sons & Company, 1978); and F. A. Hayek, Law, Legislation and Liberty, vol. 3, The Political Order of a Free People (Chicago: University of Chicago Press, 1979).
Ch. 6, Money Creation and Taxation
It is evident that any "opening" of the economy tends to place limits on the power of government to create money, quite apart from constitutionally imposed constraints. The revenue-maximizing rate of inflation could be expected to be lower in the presence of competing monies, simply because domestic monopoly power is reduced. See F. A. Hayek, The Denationalization of Money: An Analysis of the Theory and Practice of Concurrent Currencies (London: Institute of Economic Affairs, 1976).
Ch. 8, The Domain of Politics

A different, if somewhat related, approach to that previously discussed as procedural may be examined under the rubric of the "rule of law." This approach, perhaps best identified by the arguments of F. A. Hayek in his The Constitution of Liberty (1960) and subsequent writings, aims to restrict the structure or pattern of allowable outcomes rather than either the procedures for reaching outcomes or the specific outcomes themselves. This objective is to be accomplished by requiring that outcomes of the fiscal process conform to the familiar and time-honored "rule of law." By this Hayek means that all rules involving taxes must be general. They must be universally applicable to all members of the political community, whether or not these persons are inside or outside the subset of persons that make the governmental decisions. This approach essentially reflects the specific application of the traditional legal norm of "equality before the law" to the taxing activities of government.


These questions immediately raise issues of definition. How is uniformity or equality to be defined for tax purposes? Should "equality before the law" in taxation require equal payments by all persons in the polity? Or should such equality be interpreted to require that all persons in the jurisdiction confront equal rates of tax, hence allowing for proportional but not regressive or progressive tax structures? Hayek's argument to the effect that a proportional tax structure would meet the requirement for generality whereas a progressive rate structure would not do so seems to be dangerously arbitrary. To defend such a position requires considerably more analysis than Hayek has provided.

Ch. 10, Toward Authentic Tax Reform

It is essentially in the context of a presumed "democratic" model of politics that F. A. Hayek has advanced two distinct proposals for fiscal reform worthy of brief discussion here. In his treatise, The Constitution of Liberty, *112 Hayek strongly argued against progressivity in rate structures of income taxation. His argument for proportionality in rates was related directly to his more general argument for the "rule of law." Proportional taxation was classified as falling within his normative requirement that all rules or laws be general in the sense that all persons in the community be equally subjected to their impact and effect. By contrast, progression in tax rates was held to violate this basic precept of generality.


In his more recent work, Law, Legislation and Liberty, vol. 3, *113 Hayek proposes a different, and more structural, reform of political process that relates directly to the taxing power. He proposes that the structure of taxation, the distribution of relative tax shares among persons and groups, be chosen in the deliberations of a new and differently elected and differently organized assembly, an upper house, whose sole function is limited to the enactment of general laws or rules, which would presumably, once enacted, remain in force over long periods of time. Hayek's "general laws" seem equivalent to what we should here call "constitutional rules." He would then allow the other assembly, the ordinary legislature or parliament, to choose levels of taxation and, of course, levels of outlay along with the allocation among uses. *114 As with his earlier proposal for tax proportionality, the structural reform suggested by Hayek is designed primarily to reduce or to eliminate the in-period political squabbles over the distribution of relative tax shares. In a sense, both of Hayek's proposals have as their objective some insurance that tax rules be treated constitutionally rather than nonconstitutionally.


Our Leviathan construction is helpful in isolating and identifying the potential value of constitutional protection against absolute exploitation of the individual by the state. The requirement for uniformity in treatment, or insurance against relative tax deprivation, has been shown to complement constraints aimed at limiting absolute revenue potential in many cases. The significant exception here lies in the possible revenue productivity of progressive and proportional taxation. If the uniformity or legal equality precept is interpreted to require rate proportionality, as it is by Hayek and as it was by the U.S. judiciary prior to the passage of the Sixteenth Amendment in 1913, the shift to nonuniformity in the direction of rate progression may well tend to reduce rather than to enhance the maximum revenue potential available to the fiscal authority. This possible relationship tends to be obscured by the American historical experience in which the twentieth-century federal government revenue explosion was facilitated by the introduction of progressivity in rate structures. Rate progression serves to ensure that revenues increase disproportionately with real economic growth and with inflation, but this relationship would also operate under proportionality if rates should be set and adjusted continuously to revenue-maximizing levels.


Mention was made earlier in this chapter of Hayek's proposal to separate the power for setting the tax-share distribution among individuals and groups and the power of setting the level of tax rates, given the tax-share distribution. This proposal falls within what we shall call here the set of procedural constraints on fiscal powers. Earlier in the book we have, on several occasions, made reference to Knut Wicksell's proposals for constitutional change which took the form of requiring qualified majority approval of spending legislation by members of legislative assemblies. Wicksell moved from his idealized process requiring unanimous approval to the qualified majority process which involves the approval of as much as five-sixths of the members. Some participants in the discussion of the 1970s have called for constitutional requirements that dictate three-fifths, or two-thirds, approval of spending legislation in legislatures. Proposition 13 in California, in one of its less familiar clauses, requires a two-thirds majority in the state legislature for the enactment of new taxes. Further, almost all of the specific proposals previously discussed are framed in such a way as to include escape clauses, for overriding restrictive limits in times of war or national emergency. These escape clauses are almost all stated in terms of qualified majority approval in state or national legislative bodies.

F. A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960).
F. A. Hayek, Law, Legislation and Liberty, vol. 3, The Political Order of a Free People (Chicago: University of Chicago Press).
We should note that the political structure that Hayek is implicitly suggesting be modified is one of parliamentary government, akin to the British structure. His suggestions for change fit less readily into the U.S. context.
Selected Bibliography

Hayek, F. A. The Constitution of Liberty. Chicago: University of Chicago Press, 1960.

———. Denationalization of Money: An Analysis of the Theory and Practice of Concurrent Currencies. London: Institute of Economic Affairs, 1976.

———. Law, Legislation and Liberty, vol. 3, The Political Order of a Free People. Chicago: University of Chicago Press, 1979.