Conspicuous Compassion and Taxation: A Reality

Abstract

In modern public-finance literature, many canons or principles have been followed for tax policies, ‘ability principle’ (Pigou, 1933), ‘benefit principle’ (Lindahl as cited by Roberts, J, 1989). Under the benefit theory, tax levels are automatically determined and therefore self-loaded, because taxpayers pay proportionately for the government benefits they receive. In other words, the individuals who benefit the most from public services pay most of the taxes (Lindahl model,). The present paper highlights that conspicuous compassion and taxation go hand in hand especially in case of rich people but not in case of poor people and as result in modern societies tax levels are not self-loaded, a claim made by benefit principle. Along with proportionate benefit principle ‘conspicuous compassion in favour of rich people’ is also in operation in most countries of the world. This paper argues that under proportionate benefit principle with conspicuous compassion in favour of rich, the rich people are gainers as compared to the poor people. Under this principle with compassion in favour of rich, benefits of rich outweigh their costs because rich sections of the society are usually provided with large invisible services by the government such as large tax incentives and rebates. On the other hand, the costs of poor people usually outweigh their benefits because poor sections of the society are usually provided with low or no invisible services, although, they are provided with large visible benefits. But these visible benefits provided to the poor people by the government get distributed among vast section of the population.In this process, the societies end with a highly inequitable distribution of income and a paradox emerges which may rightly called as paradox of evasion-to-evasion. To improve income distribution and to control evasion-to-evasion paradox, the present study advices governments to implement progressive taxation with conspicuous compassion in favour of poor and downtrodden sections of the society. By doing this, those who will benefit more (i.e. poor) will have to pay less taxes as it ensures that large invisible services are to be provided to the poor as compared to the rich and hence the principle can be called as proportionate principle with compassion or simply conspicuous compassion taxation principle.