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Donald P. Racheter and Richard E. Wagner, eds., Politics, Taxation, and the Rule of Law: the Power to Tax in Constitutional Perspective.

DONALD P. RACHETER AND RICHARD E. WAGNER, eds., Politics, Taxation, and the Rule of Law: The Power to Tax in Constitutional Perspective (Boston, MA: Kluwer Academic Publishers, 2002, pp. vi, 272, $110.00).

This book is an excellent compilation of essays that explore the relation among (1) democratic taxation, (2) the politics of taxation, and (3) the constitutional framework for taxation. Each essay has been carefully selected to address an aspect of this relation, and they all build upon one another.

The introductory essay lays the foundation for subsequent essays by describing each of the three aspects of taxation delineated above. First, a central tenet of democratic taxation is that taxation is something we choose to do to ourselves rather than something being imposed on us by a government. Second, the theory of public finance is basically concerned with the taxing and spending activities of a government. However, when politics are incorporated into this theory, democratic fiscal practice might result in benefits for everyone, or it might involve cases where some persons benefit at the expense of others. Third, the degree to which fiscal interactions work for the general benefit of all, as opposed to a means by which some people gain an advantage by imposing burdens on others, will be controlled by the constitutional framework that governs these interactions.

The beginning series of essays examines the fundamental underpinnings between taxation and property rights in a democracy. The second essay posits that our constitutional government was founded on the Lockean notions that individuals possess natural rights in their lives and possessions created by their labors and that a government is necessary to protect its citizens, their liberty, and estates. However, in order to provide such protection, the government needs resources that are obtainable through taxation of its citizens. The third essay explores the premise that taxation converts private property to a form of common property with government as the regulatory agent. At the national level of our government, private property is appropriated through taxation and then redistributed via the spending side of the budget. This system of redistribution has the potential for abuse if special interest groups are permitted to secure favorable tax treatment to the detriment of others. The fourth essay analyzes this potential for abuse and concludes that our current tax structure fails to meet the characteristics of laws that protect taxpayers. Because there is nothing in the constitution protecting our economic rights, this essay calls for limitations (via constitutional amendment) on the taxing and spending authority of our federal government. The fifth essay discusses the concept of referendum and how it might serve to limit the power to tax. In one respect, referenda might appear to be subjecting tax legislation to some level of popular vote, but, alternatively, it could provide a majority with the means to vote on taxing people other than themselves.

The next series of essays focuses on the nature of our system of taxation and how it actually works. The sixth essay begins by reviewing various voting models used in the literature to explain the nature and level of taxation in a democratic society. The results indicate that the tax system in a democratic society will have complex features, such as multiple bases and tax rates. Finally, a study of empirical research indicates that the actual pattern of taxation in democracy will reflect such things as the relative ability of different interest groups to resist taxation by securing privileges and/or exemptions. The seventh essay explores how interest groups actually influence excise tax legislation. Because of the many justifications for excise taxes (most of which cannot be objectively measured), interest groups can manipulate information that suits them best to argue for or against a particular excise tax. The central point of this departure into excise taxes is to recognize that the best tax is one that someone else pays, and this is what interest-group politics is all about. The eighth essay continues the departure into how our tax system actually works by exploring litigation as an alternative form of taxation. This exploration begins by examining Medicare recovery lawsuits filed against tobacco companies. These lawsuits resulted in massive revenues being collected for state governments. Because of the success of this alternative form of raising revenue, the next industries targeted were gun makers and former makers of lead paint.

The ninth essay gets back to the issue of complexity first mentioned in the sixth essay. First, the actual complexity of our federal tax system is discussed, and the economic cost of such complexity is then examined. In exploring the reasons for such complexity, this essay suggests that some causes may be the result of trying to humanize the tax system and make it fair. Nevertheless, the bottom line is that proposals to simplify our federal tax system seem to go nowhere. A potential mechanism for tax reform is presented in the tenth essay. The central purpose of this essay is to present a case for site-value taxation as superior to other forms of taxation because it is more efficient and more just. Site-value taxation consists of basing public revenue on the value of real estate sites or the rent obtainable therefrom, regardless of the value and rental of any improvements such as buildings. However, to call this a tax may be misleading for, in many ways, it operates as a means whereby governments can charge land owners for public services and improvements.

The final two essays investigate the abrogation of property rights. Continuing the focus on taxation of real estate, the eleventh essay argues that zoning and developmental control can be viewed as regulatory taxation. Just as taxation is redistributive in nature, so is regulatory control of real estate; i.e., by structuring property development for some, wealth can be redistributed to other members of society. Policymakers should be aware of this redistributive character of zoning regulation because it limits the rights of property owners. The twelfth essay completes the book by examining environmental regulation in relation to property rights. The point is that any form of environmental regulation, whether it is command and control or environmental taxation, causes problems because property rights are being limited. Command and control involves imposing uniform standards across vast industries and locations--preventing pollution is a primary example. Environmental taxation involves using taxes and/or fees for rationing environmental use--carbon taxation is one of many examples.

Overall, this compilation of essays provides a rich set of explorations into the need to implement the principles of limited government. While many of the essays were written by economists, the essays are nevertheless logically presented and engaging in their presentation of the influential role politics play in taxation and the lack of counter control from rules of law. Inscribed over the entrance to the IRS building in Washington, D.C. is the following quote from Oliver Wendell Holmes: "Taxes are what we pay for a civilized society." However, the message of this book is that there is a dark side to this Faustian bargain--that the power to tax can be used to expropriate property, which could never happen if contributions were truly voluntary.

This book could be used as supplemental reading to a text or as a reference book for a graduate tax policy course. It provides the reader with fundamental analysis of what democratic taxation should be in theory and how politics has shaped the actual implementation of our system of taxation. The book also provides many insights into the multifaceted nature of taxation, such as using litigation as means of taxing industries and viewing zoning and developmental control as regulatory taxation.


Associate Professor

Loyola College in Maryland
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Author:Keeling, Kermit O.
Publication:Journal of the American Taxation Association
Article Type:Book Review
Date:Mar 22, 2004
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