How much taxation is ‘fair’?

Arguments over fairness – a philosophical concept – can easily mask a desire to simply punish those we don’t like

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EDMONTON, AB, May 21, 2015/ Troy Media/ – The new NDP government of Alberta have promised changes to the way Alberta’s government functions. In addition to a “sunshine list” disclosing infrastructure projects and public sector salaries, a review on oil and gas royalties, and promises of higher funding for social welfare, it has proposed raising the province’s corporate tax from 10 per cent to 12 per cent.

This last policy point, which the party promoted during the election, has been the subject of much controversy.

Everyone is arguing over numbers and their economic effects. Typically, there are a lot of unspoken assumptions buried in the noise of debate and name-calling. Business groups warn that the 2 per cent rise in taxes will lead to job losses and shrinking investment while social justice advocates and anti-corporate crusaders argue the tax should be even higher, that corporations should be willing to pay their ‘fair’ share. Here the business advocates are at a rhetorical disadvantage – no one would sympathize with claims that corporations are ‘unfairly’ taxes; corporations, though legally persons, are not lovable.

What does “fairness” in taxation even mean?

It’s clear what taxes are but what does ‘fairness’ mean? What defines what a ‘fair share’ of the tax burden is? Being concerned with values rather than facts, these are philosophical rather than economic questions.

Premier Rachel Notley
The new NDP government runs the risk of focusing too much on “fair share” taxation without explaining what’s fair about it

Fairness is not the same thing as justice, though it is related. Justice, in its broadest sense, can be defined as giving to people what is due to them. We lock up criminals as a punishment for their crimes, the punishment being a way of “making just” their crime, of balancing the scales. If you have contracted someone to work for you for a set amount of pay for a set amount of work and then don’t pay them after they meet every condition of their employment, you’ve committed an injustice.

What about fairness? If you employ two people doing the same job, working the same hours, and both having the same amount of experience and level of skill, and you hired them both for different rates of pay it’s not unjust – presuming that there are no laws governing rate of pay like minimum wages – but it is not fair. Justice has to do with rights, while fairness has to do with things outside the field of rights. The employees don’t have a right to the job, nor do they have a right to any wage outside of what they bargained for with you, but you are being unfair.

How does this relate to corporations and the taxes they pay? Clearly if they don’t pay the legislated tax rate they’ve committed an injustice. Fairness applies to the rate which they pay. How would one determine what’s fair for them to pay?

Unfortunately, the issue of corporate taxation is not as simple as the case of hiring employees with identical qualifications. The argument for corporations paying taxes is the same as the one for all of us paying so – it helps to fund the public goods we all benefit from. A public good is anything that, once produced or created or maintained, benefits everyone. A public highway is one such public good, as is clean air and water, a police force, a military, and courts of law that enforce contracts. Public goods are supplied by governments because there’s no way to individualize delivery of them – clean air is available to everyone and you can’t charge people for individual delivery.

Using the concept of fairness in taxation to punish

Government spending pays for infrastructure, enforcement of contracts, and a healthy and well-educated populace, all things corporations need in order to do their work and be profitable. Thus it’s only “fair” that companies should pay to maintain the things by which they benefit. The issue, again, is how much. Corporations and individuals cannot be strictly compared, which is why they are taxed at different rates. There’s also the factor that all the people they employ pay taxes as well, generating more revenue for the treasury.

Arguments over fairness can easily mask a desire to punish what is felt to be excessive profit seeking or paying wages that are perceived to be too low. The new NDP government runs that risk of focusing too much on “fair share” without explaining what’s fair about it. Corporations should keep in mind that the appearance of fairness is part of their social license to operate. Though it may sting paying a bit more in taxes, it’s nothing to complain about.

Michael Flood is a marketing writer and communications consultant. He holds an MA in Philosophy from the University of Alberta.

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