Systems of needs and principles of taxation

In the case of general or pure public goods, it is impossible to ascribe a certain amount of utilization to an individual (Sax, 1887, pp. 71 and 80). This is obvious in cases like politics, general administration, science, legal order and the avoidance of epidemics.

If individuals had a true knowledge of the facts, they would assess their taxes according to their demand for collective goods, and government would only imitate the individual valuations. The consent of every individual is not necessary - later theorists will argue over the free-rider problem. In Sax’s view, it is overcome by general consent: by the political decision that is passed in the framework of a legitimate constitutional system. Individual consent is an ‘as if’ argument, an intellectual fiction (Sax, 1924, pp. 207f.). In implementing the tax system, the state has to take into account unrealistic assessments of individuals, and it has to counter individual egoism. But the central point is that taxes are the expression of collective valuations.

Sax pleads for progressive taxation. His arguments are not based on the simple, but finally unconvincing, idea of the declining marginal utility of rising amounts of money which is usually offered following Carl Menger’s theory (Menger, 1883; Sax, 1892, p.

Second, the intensity of needs is so different that they cannot be depicted by proportional relations, as models of the theory of equal sacrifice have assumed: ‘We know that the decline of the intensity of needs and therefore the decrease of value advances, until a certain point, faster than the corre­sponding amount of goods (income) increases... From this fact we can ex ipso conclude that the progression of the tax has to take place’ (Sax, 1892, p. 93). The intensity of needs would decline relatively fast, but Sax accepts Robert Meyer’s (1887) idea that the decrease is, to a certain extent, compen­sated by a greater variety of needs and goods at higher levels of the pyramid. Sax expresses his hope that further statistical research would help to clarify this question, and he refers to the statistician Ernst Engel for recent findings.

Third, according to the complicated structure of the intensity and variety of needs, tax cannot have a regularly designed structure, and it is inadequate and a fantasy to look for a general mathematical formula. There are only broad classes of taxpayers in relation to the pyramid of needs: one could imagine a tax-free basic income, and the largest jump in the rate must necessarily occur at the step from the physical to the social minimum of living; but the further differences of tax rates in relation to income levels are shaped by the specific assessments of society.

Fourth, individual circumstances can be taken into account for the design of the tax structure, for instance whether there is a whole family that depends on a certain amount of money, or only a single individual who has the same amount of resources at his disposition. Obviously, it is necessary to reach a certain average treatment of groups of taxpayers. In reality, the tax structure will be a combination of both standards: individual property (income) and individual needs (Sax, 1887, p. 514). A just taxation leads to the reduction of opportunities for individual development that is the same for every member of the society.

Fifth, no theoretical prescription for a tax schedule is possible. The tax system is the expression of subjective valuations of the citizens, and the final outcome in legislation is determined by the political process in which group interests and strategies of political elites have their roles. It is similar to an experimental process, a trial-and-error procedure.

Sixth, Sax is against simple tax rates or single tax systems. Taxes can only be conceived as a complex of taxes that are composed as parts of a system. No individual tax can be assessed without the background of the whole tax system. Not every tax needs to be progressive; a tax may have the function of compensating the exaggerated progressivity of other taxes (Sax, 1892, pp. 43ff.). There are also special taxes (‘ZwecksteuerE, ‘SpezialsteuerE), taxes in the framework of a federal constitution, contributions (‘Beitrage^,) or specific taxes (‘UmlageE). The ‘art of taxation’ lies in the appropriate combi­nation.

The sequence and intensity of private and public needs is permanently changed and reassessed, and the political conflict continues. Sax wants to trace the rules applied to public and private economic activities back to common principles. In his model of taxation the same principles guide the absolute amount of the public budget and the distribution of the burden for individuals, the revenues and the expenditure side of the budget, and the private and public decisions of individuals.

References

Bohm-Bawerk, Eugen von (1881), Rechte und Verhaltnisse vom Standpunkte der Volkswirthschaftlichen GUterlehre. Kritische Studie [Rights and Relations from the Perspec­tive of the Economic Study of Goods. A Critical Analysis], Innsbruck: Wagner.

Lindahl, Erik (1919), Die Gerechtigkeit der Besteuerung. Eine Analyse der Steuerprinzipien auf Grundlage der Grenznutzentheorie [Justice of Taxation. An Analysis of Tax Principles based on Marginal Utility Theory], dissertation, Lund.

Maslow, Abraham (1954), Motivation and Personality, New York: Harper & Row.

Menger, Carl (1883), Untersuchungen uber die Methode der Sozialwissenschaften und der Politischen Okonomie insbesondere [Investigations into the Methods of the Social Sciences, with Special Reference to Economics], Leipzig: Duncker & Humblot.

Meyer, Robert (1887), Das Wesen des Einkommens. Eine Volkswirthschaftliche Untersuchung [The Nature of Income. An Economic Analysis], Berlin: Hertz.

Neck, Reinhard (1989), ‘Emil Sax’s contribution to public economics’, Journal of Economic Studies, 16 (2), 23-46.

Sax, Emil (1884), Das Wesen und die Aufgaben der Nationalokonomie. Ein Beitrag zu den Grundproblemen dieser Wissenschaft [The Nature and Functions of Economics. A Contribu­tion to the Principles of Economic Science], Vienna: Holder.

Sax, Emil (1887), Grundlegung der theoretischen Staatswirthschaft [Principles of the Theory of Public Economics], Vienna: Holder.

Sax, Emil (1892), ‘Die Progressivsteuer' [‘The Progressive Tax’], Zeitschriftfur Volkswirtschaft und Sozialpolitik, 1, 43-101.

Sax, Emil (1916), Der Kapitalzins. Kritische Studien [Interest of Capital. Critical Studies], Berlin: Springer.

Sax, Emil (1924), ‘Die Wertungstheorie der Steuer’ [‘The Valuation Theory of Tax’], Zeitschrift fur Volkswirtschaft und Sozialpolitik, NS, 4, 191-240.

Sorokin, Pitrim A. (1937), Social and Cultural Dynamics, New York: American Book Co.

Sorokin, Pitrim A. (1953), Kulturkrise und Gesellschaftsphilosophie, Stuttgart: Humboldt.

Wicksell, Knut (1896), Finanztheoretische Untersuchungen nebst Darstellung und Kritik des Steuerwesens Schwedens [Investigations in Fiscal Theory, Including a Description and Cri­tique of the Swedish Tax System], Jena: Gustav Fischer.

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