“Taxation on performance” vs.”taxation on interests”: What is fair?

In preparation of a meeting with Hayek-Followers the next weekend I am reading a paper (Markt und Staat in einer globalisierten Welt: Die ordnungsökonomische Perspektive) from Viktor J. Vanberg.

Among other things the paper is about taxation in a globalised world. Vanberg draws attention to an interesting point: about the ethical standard of raising taxes. To most Germans it seem to be clear that the amount of tax they have to pay depends on their income. And that for paying taxes they can’t expect anything concrete in return.

It is the almost definition of taxes – at least in Germany and in contrast to fees (“Gebühren”) and contributions (“Beiträge”) – that there is no counterpart of your financial efforts.

But this, Vanberg argues, is not only a problem in a globalised world (because if you have to pay with nothing in return you – as a person but also as a company – will think about changing location and therefore taxation), taxation without compensation can also be perceived as unfair.

So maybe, under the pressure of globalization, we are moving away from ‘taxation on performance‘ (‘Besteuerung nach Leistungsfähigkeit’) towards … er, what? Vanberg has an idea. He recalls the Swedish economist Knut Wicksell who favored a “taxation on interests“. In this sense taxation would be a kind of membership-fee for being part of a society. And because societies (in a Rawls’ sense) are made for social cooperation for mutual advantage, everybody should pay for their interest of his own personal benefit.

Thinking taxation that way means rethinking the whole system of taxation. Quite interesting.

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