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This is the second set of lecture notes from courses in public finance published in an archival volume in this series. Volume 19-C (2001) was entirely devoted to notes from lectures by E. R. A. Seligman at Columbia University. Two differences mark Seligman’s lectures and the lectures by Henry C. Simons at Chicago, as reported below. Seligman seems to have been lecturing primarily to students in tax administration, hence he presented very little economic theory; whereas Simons was lecturing to graduate students in economics, and presented relatively more theory. Seligman did not refrain from some passing of judgment but his lectures were largely descriptive and non-judgmental; whereas Simons has no hesitation in presenting his own normative approach on various issues. These issues tended strongly to focus on inequality, tax justice, and progressivity.

Seligman is an important and ironically somewhat neglected figure today in the history of American economic thought. However, an examination of his scholarly achievements reveals that he had a considerable impact on the development of professional economics in America and could count the most influential economists in Europe as personal friends and collaborators (Moss, 2003; Rutherford, 2004; Mehrotra, 2005). Asso and Fiorito (2006), in their introduction to Seligman's autobiography (1929) argue that ‘his personal influence as an academic economist, as a teacher and as a central figure in the dissemination of economic knowledge was second to none and perhaps more meaningful than any single work he wrote’ (p. 1). They also record (quoting his student, Alvin Johnson) that ‘with Seligman…American economics began to acquire a distinctive professional reputation, some very high scholarly standards and a sort of “moral magnificence”’ (p. 2). What this means is that through Seligman's work and guidance economics came to encompass a moral dimension that fed through into social policies, many of which were adopted by American legislatures. The major influences on his method included the German Historical School and a number of heterodox Continental writers that informed Seligman's in great Whig interpretation of the development of economics. He also engaged critically with the more abstract methods of contemporary economic analysis of the early twentieth century.

In The Road to Serfdom, Hayek argued against planned economies that “the close interdependence of all economic phenomena makes it difficult to stop planning just where we wish…once the free working of the market is impeded beyond a certain degree, the planner will be forced to extend his controls till they become all-comprehensive” (Hayek, 1944, p. 79). According to Hayek, and especially Mises, there exists no stable condition in-between laissez faire capitalism and the planned economy. Once politicians engaged in acts of interventionism further interventions would successively lead them towards a condition where the state fully planned and controlled the economy and civil society. According to Austrians, ‘interventionism’ thus represented an unstable and self-reinforcing condition (Burton, 1984, p. 110). In John Gray's words “whenever an interventionist policy…fails to achieve the desires result, the practical and theoretical response of the interventionist ideologue is to demand an extension of the policy to new fields…interventionist policies will always interpret the failure of any such policy, not as a reason in favour of its abandonment, but rather as one supporting its wider application”(Gray, 1984, p. 32).

We investigate the relationship between the notion of progressive taxation and inequality reduction under a general version of the concept of inequality equivalence. We consider a two-parameter formalization of the concept of inequality equivalence that both includes, as special cases, the intermediate inequality equivalence and the path-independent/unit-consistent inequality equivalence. Both criteria could range from relative to absolute inequality views as the parameters in the formulation change. For the path-independent/unit-consistent inequality equivalence the condition of nondecreasing average tax rate is necessary and sufficient to guarantee the inequality-reducing effect of taxation for all the inequality views in between the relative and the absolute.

This chapter examines how public attitudes and judgments about tax fairness reflect distributive justice rules about proportionality/contributions, needs, and equality; fairness issues that influence voluntary tax compliance (Hofmann, Hoelzl, & Kirchler, 2008; Spicer & Lundstedt, 1976). Most public polls and some prior research indicate the general public considers progressive income tax rates as fairer than flat tax rates, a reflection of the Needs rule of distributive justice theory; our 1,138 participants respond similarly. However, two-thirds of our politically representative sample of the American public actually assign “fair shares” of income taxes consistently with fairness-as-proportionality above an exempt amount of income, consistent with the Contributions rule of Equity Theory. We argue experimental assignments of fair shares of income taxes can best be understood as a combination of the Needs rule, applied by exempting incomes below the poverty line from income taxation (via current standard deductions) and taxing incomes above this exempt amount at a single tax rate (i.e., a flat-rate tax) consistent with the Proportionality/Contributions rule. Viewed in combination, these two distributive justice rules explain the tax fairness judgments of 89% of our sample and indicate surprising general agreement about what constitutes a fair share of income taxes that should be paid by US citizens from the 5th percentile to the 95th percentile of the income distribution. The joint application of these fairness rules indicates how seemingly competing, partisan distributive justice concerns can inform our understanding of social attitudes about tax fairness across income classes.

There is a consensus in the general public that income taxes should be everywhere progressive. Starting from the basic properties normally required, we examine the possibilities of designing everywhere progressive income tax schedules. An axiomatic analysis investigates the (in)consistency of these requirements with further restrictions on the degree of progression. It turns out that everywhere progressive tax schedules have to be maximally progressive or almost proportional in some income range.

Generational theory research suggests that the arrival of the Millennial generation into adulthood will have significant effects on society because of their differing values and attitudes. We examine whether this generation has differing perceptions of tax fairness as well as their attitudes towards tax compliance as compared to other generations by administering an instrument to a sample of 303 taxpayers, distributed approximately equally across three generational groups: Baby Boomers, Generation X, and Millennials. The results suggest that there are significant differences in the viewpoints toward vertical equity and progressive taxation among the three generations. More specifically, the Millennial generation was less likely to recommend progressive taxation than the other two generations. In addition, there were significant differences between the groups on an exchange equity question as well. However, in this situation, it was the Baby Boomers that were significantly different from the other two generations. The results also suggest that the Millennials have attitudes that are more accepting of noncompliance than both the Generation X participants and the Baby Boomer participants. However, a significant difference does not exist between the Baby Boomer participants and Generation X participants on their attitudes towards compliance.