Here Comes the Judge: Is Taxation Moral and Fair?

Examining four possibilities and various tax schemes

“Fairness” has become as common as it has hackneyed in discussions of taxation in the United States and around the globe. Rarely a day goes by without a media headline or politician railing against the “unfairness” of the current system and haranguing others for not paying their “fair share.” (See here, here, here, and here.) However, invariably omitted from these discussions is the other key element to consider when discussing any policy or life decision: morality. Together, fairness and morality serve as crucial guides for us throughout our daily lives, and most of us teach our children about these concepts as foundations for their growth as human beings.

Thus, we can explore taxation in terms of these two guiding principles. First, though, let us consider definitions and the possibilities for a taxation system. By moral, I mean “conforming to a standard of right behavior,” and that standard I am using is the one applicable across most societies on earth: force or fraud against others is wrong. By fair, I mean “marked by impartiality and honesty; free from self-interest, prejudice, or favoritism.”

Now on to the possibilities of fairness and morality for a taxation system. One, the system could be moral and fair. Two, it could be immoral but fair. Three, it could be immoral and unfair. Four, it could be unfair but moral. Regardless of your position on taxation, we can agree that those four are the only possibilities by which we could judge a taxation system on its fairness and morality. Figure 1 below displays these options.

Figure 1. Quadrants of Morality and Fairness

We can now examine each possibility via some examples.

Moral but Unfair

First, in order for a taxation system to be moral, it must be voluntary because coercion is, by definition, immoral. Thus, a taxation system that is moral but unfair may send a donation form (instead of a bill—voluntary, remember?) to only certain people and/or base the suggested donations on people’s incomes, home values, or some other basis that leads people to pay different amounts for the same services. For instance, you open your mail and get a donation form from the Department of Defense that says your (optional) yearly contribution is 1% of your home value while my DoD donation form asks for a contribution of only 0.5% of my home value.

Such a system would certainly be moral because each person can decide to fund the various government agencies and departments as he or she sees fits, but it would be unfair because each person is being charged a different price.

For a real-life situation, consider that recently, a gas station owner here in the United States began charging customers for gas and other items sold in her store based on the values of their cars. (Values are determined by the original MSRPs of the vehicles.) So, instead of displaying gas prices in dollars, the owner now displays percentages (rates) on her electronic sign outside the store. On a recent day, for instance, customers were charged 0.01% of their vehicle’s value per gallon for regular and 0.0151% of the vehicle’s value per gallon for premium. Inside the store, similar rate-based pricing exists. For example, a Diet Coke was recently 0.005% of the vehicle’s value.

The owner has stated that she implemented this change after seeing many wealthy people in expensive cars paying the same prices for food, gas, and other items that poorer people in dilapidated cars were paying. She hopes this change in pricing will ensure that every customer pays his or her fair share.

How do you feel about that owner’s decision? Would you like other businesses to implement such pricing schemes, or do you think there is something inherently wrong (unfair) about such pricing? Would you ever “cheat” by driving an older, less valuable car to this store if you knew you were going to buy something there?

Before we get too far down the rabbit hole, let me confess: The above story is purely fiction. However, it is based on the pricing that governments use and that many people feel is “fairer” than charging everyone the same price, as nearly all private businesses do. But why is this? I speculate that most readers felt a visceral revolt against the store owner portrayed above, but many of those same people accept such schemes when perpetrated by state actors. Based on our definitions above, however, such a situation is moral but unfair.

Immoral but Fair

Next, what about a taxation system that is immoral but fair? The immoral part is easy; the system simply needs to be coercive like our current taxation system. In other words, taxes are collected through violence or the threat of violence. If you do not pay, violence can be used against you.

But we can make such a system at least fair by moving from a rate-based scheme to a price- or fee-based scheme. In other words, we would move from percentages to flat prices.

For instance, imagine that everyone paid the same price for local services, just as everyone pays the same price for Cheetos or gas at the gas station. The local politicians would send everyone the same bill: $500 for police, $300 for fire services, $4,000 for schools, $250 for roads, et cetera.

Then we can apply our thought experiment to the state and federal levels, too. Instead of a convoluted tax code and various brackets that are subject to change at politicians’ whims, what if everyone received the same bill for each government “service”? That would certainly provide much more fairness and much-needed transparency. Instead of opaquely having a line item for federal income taxes on your paycheck, you could see line items for each “service.”

For instance, the Defense Department budget for 2024 is $869 billion, which is $3,401.75 per voting-age person, $2,600.78 per person, or $6,911.29 per household. Assuming 26 pay periods per year, you and I and every other voting-age person would pay the same $130.84 per paycheck for the Defense Department. No brackets, no gimmicks, no deductions, no concern about “fair shares.” Plus, we would have the added benefit of seeing quite clearly where our money is going and much more tangibly understanding what an $869 billion budget means for each of us every single paycheck.

Such a system, although still immoral because it forces you to pay, would certainly be fair in that everyone would pay the same amount for each service. Note that this system is much different from a flat-tax system because that type of scheme still uses a percentage, such as 10%, and applies it to everyone. As we discussed above with the gas station example, however, such a system still is unfair because people are paying different prices for the same services.

Finally, also note that if such a system is immoral, then failing to pay is not “cheating” any more than thwarting a thief in your home is “cheating” the thief. If the action is immoral, then militating against the action is not wrong in any sense of morality.

Immoral and Unfair

This type of taxation system is simple to understand because it is the one that currently exists at all levels of government. Politicians demand a portion of your income and wealth based on arbitrary brackets or the politically determined values of your home and other possessions and threaten you with violence if you do not pay. Thus, it is clearly immoral because it is predicated on both theft and violence.

Note that even if you argue that you want the services provided by the politicians and government employees, you still cannot choose how much you pay for those services, you cannot opt out of any services, and you must still fund the services even if you use a competitor (if one is allowed to operate). For an example of the latter point, if you hire private security because you are dissatisfied with the police department, you must pay for both the private security and the police department.

 Therefore, this system is still immoral even if you claim to want the provided services.

 Such a system is also unfair for all the reasons stated earlier in the section “Moral but Unfair.” However, I will also emphasize here the unfairness of the arbitrary distinctions in different rate levels. For example, in 2024, a single tax payer owes 10% of his or her income up to $11,600 but then 12% of income from $11,600 to $47,150. What fairness is there in those rates and cut-off points? Why not 9.9% up to $12,766? Or 3.787574% up to $21,901.77?

Someone can argue that he or she thinks it is “fair” for “wealthy” people to pay more than “poor” people—I obviously disagree—but I find it impossible to argue that we somehow know exactly how much more that person should pay or even what constitutes “wealthy” and “poor.” Such distinctions are simply capricious and the quintessence of unfairness.

Moral and Fair

Finally, we have reached the promised land. By now, I’m sure you can see how we arrive at a moral and fair taxation system, but I’ll provide a few details just to flesh things out.

To begin, the system would be voluntary so that it could be moral. Each person would thus have the option to fund or not fund any services or agencies. The system would also use equal prices for its services so that everyone who wanted to fund the services would pay the same (fair) prices.

If such a system seems fanciful to you, it shouldn’t—it is how the world outside of government coercion works each and every day. It is how grocery stores, car dealers, internet providers, and myriad other voluntary companies operate in the market. Thus, the common concern that “no one would fund the roads” without coercion is belied by everything else around you. No one forces you to buy groceries or internet service or vehicles, yet you do because you value them.

In the same way, private ownership of services such as roadways would ensure that we pay for things we value at the levels (prices) at which we value them. Far from being a disaster, such a system would arguably provide better services and more variety while respecting the morality and fairness we value enough to impart to our children.