February 23, 2013
Debunking Fair Share
From Mr Jay Starkman.
Sir, The term fair share, used by three distinguished finance ministers (We are determined that multinationals will not avoid tax, Letters, February 16) deserves no place in tax policy. It violates Judge Learned Hands aphorism, that taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.
Fair share has varying meanings. France imposed an income tax in 1355 to finance the Hundred Years War at 4 per cent on the rich, 5 per cent on the middle class, and 10 per cent on the poor. At 4 per cent, a rich man would pay far more tax than a poor man at 10 per cent. The Isle of Man today sets a maximum income tax of £115,000.
A global economy with large and growing service and internet sectors creates a challenge for defining and assessing the tax base. Good tax policy should be based on capacity to pay, not fair share. Sales taxes and value added tax assume capacity to pay, but they are regressive, not necessarily fair.
The ministers should heed J.P. Morgans 1937 advice: Congress should know how to levy taxes, and if it doesnt know how to collect them, then a man is a fool to pay the taxes.
This letter was originally published in the Financial Times on February 23, 2013 under the title, Good tax policy should be based on capacity to pay.