Equity (economics)

The tax justice is a fundamental principle of tax law and specific expression of the constitutionally guaranteed equality.

Historical Reason

A modern state needs to fund its various tasks revenue, which is mainly achieved by taxing its citizens. In ancient times demanded the corresponding authority charges. The Prussian Finance Minister Johannes von Miquel developed in 1891 a modern income tax system. Due to the introduction of a general tax declaration obligations and of progressive taxation, it served as a model for other German states. In a democratic polity, the tax principles to be disclosed because of the legitimacy problem, as the enforcement and implementation of general taxation rules is closely linked to the acceptance of the tax laws by the citizen. This in turn affected the tax equity and the related tax effects on the income structure.

In classical economic theory, John Stuart Mill and Adam Smith can be highlighted, which have identified the following postulates as a classical taxation principles in their time:

• Taxation equality
• Taxation determination
• Taxation convenience
• Taxation cheapness

Principle of equality of taxation

The tax justice demands that the tax on the economic capacity of the taxpayer -oriented ( ability to pay ) and that it is designed internally consistent ( consistency principle).

As a fundamental principle of taxation it is an essential part of the control system. From the point of acceptance of each of the tax, a fair distribution of the tax burden is required. A control system that is at the mercy of social interest, is perceived by the public as unfair and exploited for personal advantage. Tax avoidance opportunities may significantly disturb the sense of justice with the threat of generating revenue ( emigration abroad ).

The individual economic performance depends on a measure of the tax burden of the economic position of the taxpayer. Here a distinction is made between:

• Horizontal tax equity: Taxpayers with the same performance should be taxed also equally high
• Vertical tax equity: Taxpayers with unequal capacity, need to be taxed differently

This results in three problems:

• How should the performance be measured (indicators problem)
• How should the tax rate be designed and
• How is that justice postulate to be implemented in the tax laws?

As an indicator of the performance of the income, consumption, and to some extent the assets are. The income tax and corporation tax the income, the consumption tax, the inheritance tax and the property tax wealth.

Problems show up in the localization of taxable income. After the net worth theory access all receipts and capital gains or asset increases between two balance sheet dates should be taxed. According to the source theory only regular influx of income should be taxed.

Furthermore, the so-called sacrificial theory have been developed, starting from a declining marginal utility of income. Marginal utility: The more money an individual possesses, the less is the benefit of the individual Euros. Compare, for example, a person with 100 euro must survive a whole month with a person who has 10,000 euros to the month. In the former, the benefit of each individual Euros is large, in the latter it comes to a euro not more or less. The theory of sacrifice is not understood as a clear and consistent approach to the design of vertical performance.

Self -employed and self-employed

A special case is the implementation of the principle of taxation in the taxation of income from self-employment on the one hand and the income from employment on the other hand equality.

The net income of a self -represented on the one hand, the reward for business risk, which he received, as well as a return on the capital that he has invested and possibly also the reward for his personal use. Instead, he could offer his labor power on the labor market and receive income from employment. In this context, the question arises whether the two types of income should be taxed equally.

If a control system provides benefits for self-employed, which may be an incentive to strive for self-employment. The result could be start-ups of smaller firms and " Subcontracting " companies. On the other hand, a significantly higher taxation of income from self-employment urge the productive forces as an employee. Besides only marginally higher, the same or even lower high income from self-employment, here takes the factor of risk aversion of job loss increases proportionally and leads to a higher individual assessment of the employment relationship in comparison to independence.

Assuming an equal taxation of self-employment or self-employment, so the same x and min or results in a proportional increase in their net income from self-employment compared to net income from employment. Capital income are disregarded for purposes of comparison.

• = Net income from self-employment
• = Net income from employment
• = Notional remuneration for business risk
• = Notional interest rate on equity / compensation for interest payments on borrowings
• = Pay for performance
• = Tax rates
• = Reservation boundary

Should an individual decide whether it wants to have income from self-employment or from employment, this can not be assessed objectively on the basis of individual reservation boundary and the individual assessment of Einkunftssicherheit.

It must be stated, however, that with a lower, so tax breaks for income from self-employment, is proportionally larger than, and the likelihood that more individuals the reservation limit is exceeded, is proportionally larger. On the other hand, it is also clear that a high tax rate, the individual forces directly as an employee. Besides only marginally higher, equal or lower income, here also takes the factor of risk aversion of job loss is proportional to, and lets the individual, evaluate the employment relationship even higher, so the move upward.

Minimum requirements

In Germany the following minimum requirements have emerged for determining the taxable capacity by the Federal Constitutional Court:

• Tax exemption of subsistence: The taxpayer must remain for a decent life after taxation enough money. The lower limit of this minimum requirement of the welfare rate for the needy will be used.

• Family Tax Justice: The statutory maintenance obligation towards members must be considered.

• Uniformity of taxation, legal status neutrality: Regardless of which legal form is chosen for a company that should produce an equal tax burden similar economic situations.

• Social Tax Justice: Incentives for economic independence, to save and to home ownership. However, it must be by a sharp progressive taxation with the aim of redistributing power not be so strong " punished" service providers move abroad.

Swell

• Finance
• Taxes and duties
• Philosophy of Law
• Tax law