ABSTRACT

Inequalities of wealth, income, power and prestige are universal characteristics of social life.
Economic inequality or wealth and income difference comprises all disparities in the
distribution of economic assets and income. Impact of economic inequalities on life
expectancy, higher disease rates, infant mortality, emotional depression and prison population
etc. correlate with higher social economic inequality. The directive principles of state policy
laid down in the Constitution of India have proclaimed justice- social, economic and political
as a basic national commitment. Social and economic justice have several dimensions such as
extreme inequalities of income and wealth, regional imbalance, concentration of wealth and
means of production, special care of vulnerable and disadvantaged section of the society.
Those who oppose taxes call it a burden imposed on the people, benefitting none than those
in government and bureaucracy. Others are those who advocate free markets believe the
‘invisible hand’ to be the better arbitrator to social justice. To put the debate on taxes in
perspective, it is important to consider the need for social justice against a backdrop of
societies that have practiced discrimination based on caste. Such societies stratify people by
birth based on the castes they are born into. Caste based discrimination on its part has
systematically ensured subjection of certain classes, with minimal access to fundamental
rights. This in turn has ensured such classes live their lives in near penury. This research
paper looks at class based discrimination as a preceding social more in the demand for
progressive taxation.

Keywords: Caste; Discrimination; Progressive Taxation; Social More

INTRODUCTION

The seemingly straightforward relationship between taxing a population in a ‘progressive’

way and letting that achieve social justice isn’t really that straightforward. Even James
Mead’s treatise, “we should strive . . . to arrange for direct international transfers of income
from those to whom income means little to those to whom income means much”, is neither
palatable, especially for the moneyed class, nor easy to achieve. In societies where wealth
creation has been an individualistic pursuit, the desire to part with a portion of one’s wealth
in the name of taxes doesn’t come easy. This despite the lure of contributing to larger social
good. The pertinent question in such a circumstance is, ‘why should one be responsible for
another’s upkeep?’ If a social circumstances begin at an even keel for all who seek their own
personal good, why should one man’s fortune compensate towards alleviating another’s
misery? Culture is why societies differ. Cultural norms are why some societies pursue
individualism as a right, whilst others gravitate towards collectivism.

In the former, government intervention aimed at social good is often seen as a transgression
by the state into individual liberty. The best example to this would be the opposition to
universal healthcare in the United States of America. There are quite some people who
believe healthcare isn’t a universal right. And even if it is, paying for it through raising taxes
so the ones who don’t have healthcare benefit isn’t acceptable. The stark contrast to such
social attitudes can be seen in collectivistic societies.

Collectivists see government as the legitimate provider of social good. At times such societies
take social welfare to an extreme of ‘entitlement’ Citizens foster the belief that they are
entitled to products and services, and that it is the duty of government to be the provider. The
willingness to contribute to a tax kitty that accounts for income re-distribution is always
under question. More so, when redistributed wealth is culled out of ‘earned’ as against
‘inherited’ wealth. Earned wealth brings with it a greater sense of ownership, therefore a
lesser desire to part with it. Inherited on the other hand is more conducive to being taken
away in the form of taxes.

Now if one were to assume a lack of desire to contribute to taxes when the wealth’s self-
made, what could the justification be to the act of taxing earned wealth? In fact, ‘tax cuts’
touted by governments as letting people keep their wealth is seen as a fallacious act. As
Thomas Sowell (2010) states and asks, ‘When you refrain from raising someone’s taxes, you
are not “giving” them anything. Even if you were actually cutting their tax rate — which is
out of the question today — you would still not be “giving” them anything, but only allowing
them to keep more of what they have earned. Is the government doing any of us a big favor
by not taking even more of what we have worked for? Is it not an insult to our intelligence to
say that the government is “giving” us something by not taxing it away?’ Thus the pointed
issue that invites much debate is the justification in taxation. When are taxes in a progressive
manner or otherwise justified? When it is moral to have government tax people according to
their wealth and redistribute what’s collected as tax kitty? The answer and the justification
that supports taxation lies in the study of a social mores and what that’s done to the
prevalence of social justice. The question that be asked is, how evenly keeled is a society, or
was to its inhabitants? Did every citizen have access to the same level playing field when it
came to wealth creation? If the answer is a no, it then requires an intervention be brought in
to set a level playing field. The intervention specifically should seek to set right social
injustices that have long been perpetrated in a society. And in doing so the objective must be
to raise the disadvantaged to a position from where they can, using social benefits, partake of
social progress.

CASTE SYSTEM

India in many ways can be tagged a Caste society. The New Shorter Oxford English
Dictionary defines Caste as “a Hindu hereditary class of socially equal persons, united in
religion and usually following similar occupations, distinguished from other castes in the
hierarchy by its relative degree of purity or pollution.” A Caste system can be defined as a
type of social structure that divides people on the basis of inherited social status. It was
during the British colonial rule in India that a common theory of caste, as we have come to
understand it today, was first articulated (Cohn, 1996; Dirks, 2001). Caste affiliations in India
primarily flow to either a birth group (Jati) or a class (Varna) (Narasimhachary, 2002). From
this very ‘natural’ flow arise acts of injustice in Caste societies that pervade almost all
spheres of human life. Take for example one’s choice of profession. The Caste system has
ensured that generation after generation of a particular caste engages in only one profession.
Even when it could be the socially degrading profession of ‘Manual scavenging’ that Indian
law has banned (Economist, 2008). Such a ‘by birth’ lot is mainly reserved for the ‘Dalits’**
in India. ‘Dalit’ is a term which has had increasing currency in recent years in India.
Literally, it means ‘the oppressed’. It encompasses peoples who used to be called
‘untouchables’, or ‘Harijans’; who are often also referred to as ‘Scheduled Castes’, because
of the way they are referred to in the constitution of India (Dalit Solidarity Network, 2006).
Though caste system gets primarily identified as being part of Indian society, the
phenomenon of social exclusion isn’t restricted to India alone. Early social anthropological
studies, particularly those carried out during 1950s and 1960s, often pointed to the existence
of caste based hierarchies and untouchability in other countries of South Asia as well (see, for
example Hofer, 2005; Banks, 1971; Leach, 1971; Barth, 1971).

It was but natural that the embedding of caste system within societies came from a legitimacy
that was derived from the practice of religion. But the practice wasn’t restricted only to
ideology. Instead it transgressed into other areas including the socio-economic system,
cultural discourse and even political arenas. The stranglehold the caste system achieved
further ensured the disenfranchised classes remained barred from participating in anything
that could promise social progress. Now the larger question that needs to be asked is whether
the caste system systematically ensured certain classes in society were confined to
generational penury. To that, the answer is an unequivocal yes.

For centuries the caste system oppressed certain sections of societies while giving others the
sanction to both oppress and also enjoy the labor of the oppressed. And such practices
continue, still. Despite the fact that governmental initiatives have tried to lift the Dalits out of
poverty through a ‘job reservation’ program, its effects have been negligible. This is partly
due to a mindset problem that affects both the oppressed and the oppressor. The Oppressed
believe it is their lot to do what’s dictated by a social system that has existed for centuries.
The oppressor believes the Dalit is not worthy of any tasks other than those assigned to by the
Caste system. As Bezwada Wilson, son of a manual scavenger and founder of Dalits Human
Rights Group states, ‘the greatest difficulty was to convince his own community that carrying
other people’s excreta—manually picked up and carried on the head in baskets—was not
their destiny; that it was not their past sins that had condemned them to a life of such
humiliation. Their lot was due to the apathy of other humans and a selfish caste system
(Sarabhai, 2010). Thus it can be seen that the caste system is a major barrier to reducing
income inequality due to the difficulty of moving out of one’s expected role and therefore
income bracket (Munshi and Rosenweig, 2005). Furthermore one of the most striking
features of the caste system in countries where it is practiced is the association of Dalit
communities with certain types of jobs. For example, the cleaning of streets and latrines,
dealing with dead animals, casual and bonded labor on land are identified with Dalit
communities. Not only are these low status jobs, invariably they are also low paid jobs.
Another common feature of Dalit life is residential segregation. Dalits of South Asia live in
segregated settlements away from the main village, or in the urban slums where living
conditions are generally poor.
Constitution and taxation

Article 38(1) provides that the State shall strive to promote the welfare of the people by
securing and protecting as effectively as it may a social order in which justice, social,
economic and political, shall inform all the institutions of the national life. And its sub article
says that 38(2) the State shall, in particular, strive to minimize the inequalities in income, and
endeavor to eliminate inequalities in status, facilities and opportunities, not only amongst
individuals but also amongst groups of people residing in different areas or engaged in
different vocations. Therefore, the fiscal policy, if properly designed, is an efficient and
equitable way of social equality and economic growth.

It is widely acknowledged that there are 4 five desirable principles for a “good” tax system1:

1. Economic efficiency: the tax system should not interfere with the efficient allocation
of resources.
2. Administrative simplicity: the tax system should be easy and relatively inexpensive to
administer.
3. Flexibility: the tax system should be able to respond quickly (in some cases
automatically) to changed economic circumstances.
4. Political responsibility: the tax system should be designed so that individuals can
ascertain what they are paying and evaluate how accurately the system reflects their
preferences.
5. Fairness: the tax system should be fair in its relative treatment of different individuals.

All of the principles mentioned above affect both economic growth and the behavior of
individuals and families. Therefore, the type of tax system should be determined by applying
the systematic approach that will eliminate the possibilities for both economic and social
development. No universal tax system exists that can be transposed directly in Bulgaria, for
instance. Either the economic factors or the factors of social justice and solidarity will
dominate at one point or another. Economic efficiency is an extremely important and, in most
cases, fundamental principle. If there is a wide range of tax reliefs and incentives, individuals
and families can improve their financial situation by applying successful tax avoidance
efforts instead of directing these efforts towards elaborating good business projects or
producing more and higher quality work.

Taxes such as the tax on wages and on the return on capital change the economic equilibrium.
The tax on savings account interest may decrease the amount of the savings and eventually
reduce capital stock, which, in turn, causes a drop in workers' productivity and a fall in their
wages. These indirect tax effects are called effects on the general equilibrium. The effects on
the general equilibrium have important distributional implications which sometimes move in
a direction opposite to what legislators have intended.

1
4 Stiglitz, Joseph, Economics of the Public Sector. University Publishing House “Stopanstvo”, S., 1996
(1988), pp. 454-455. (in Bulgarian)
Justice and taxation

No tax system in the world can be regarded as completely fair. Citizens around the world
describe their countries' tax systems as unfair, but from a different standpoint. It is difficult,
however, to determine what exactly is fair and what isn't in a specific place and at an exact
moment in time. The concept of “justice” itself is very often defined by resorting to artificial
constructs rather than to a phenomenon (process) of universal2 nature.

And if there is a generally accepted form of justice somewhere, then it is not universal or3
universally applicable. Every society is just in its own way, but it is generally acknowledged
that nowadays social justice is undergoing a process of4 development.

But what is the modern understanding of justice? There is no justice in the laws of nature or
even in the Universe; throughout human history, justice has also been more of an imaginary
concept,5 an imagined reality than a law of nature. Freedom is what gives room for personal
development; justice is what creates a large-scale cooperation network among free
individuals; solidarity is what provides an additional social network in order to further this
cooperation and reach the weaker members of society.

For example, in a decentralized capitalist market economy freedom creates a lean

hierarchical system based on the results of the activity of the “invisible hand”. Thanks to this
invisible hand, some become very rich, while others remain very poor; some enjoy privileges
and power, while others, who are lower down the hierarchical ladder, remain repressed and
disempowered; in a capitalist market economy inequality is fair; transferring the inheritance
of the family to the children is also fair; equality before the law is also perceived as supreme
justice.

Such a vertically expanding society, especially in the context of a developing democracy,

however, gives rise to institutions and forms of justice that are a far cry from the principles of
freedom: free education for all, health care for all, unemployment benefits, etc. The idea that
freedom is unlimited is a fiction; the idea that justice requires (in the 21st century) helping the
poorest and weakest is also a fiction. But in all these cases, justice – as perceived by the
greater part of society – plays the unifying role of social glue.

In societies where more emphasis is put on market justice (every man for himself) the rich
will “naturally” pay lower taxes than in other analogue societies. In such societies the
hierarchical structure will be much more stretched and sharpened. In societies where more

2
5 Rawls, J., Theory of Justice. Sofia S.A. Publishing House, S., 1998 (1991).(in Bulgarian)

3
Walzer, Michael, Spheres of justice. Critique and Humanism Publishing House, S., 2010 (1983). (in
Bulgarian)
4
Huddleston, J., Search for a just society. University Publishing House “St. Kliment Ohridski”, S., 2001 (1989).
(in Bulgarian)
5
Harari, Yuva, Noah, Sapiens: ABrief History of Humankind. EastWest Publishing House, S., 2016 (2011), p.
121. (in Bulgarian)
emphasis is put on social justice (“all for one and one for all”) the rich will “naturally” pay
higher taxes in order to make the structure flatter and more rounded and provide equality of
access.

There are two main concepts of tax justice: horizontal equity and vertical equity. A tax
system is considered horizontally equitable if the people who are the same in all relevant
respects receive the same treatment. The principle of horizontal equity is so important that it
has been incorporated in all Western constitutions. Thus, a tax system that contains gender,
race, skin color or religious biases is considered to be6 horizontally inequitable (and
unconstitutional). Although the basic idea is quite straightforward, there are some ambiguities
as regards the definition. What do two people being the same in all relevant respects mean?
And what does two people receiving the same treatment mean? Let's look at two people who
are the same in all respects except the fact that one of them has bought himself an expensive
watch, and the other – a cheap one. Does the tax system treat both of them in a horizontally
equitable way if it taxes the two different watches at different rates – the former is treated as a
luxury item, and the latter is treated as an ordinary consumer product? One of them pays
more taxes than the other (for the same good that even fulfils the same function) and in this
context the tax system seems unfair. But both have the same “set of capabilities”. The man
who bought an expensive watch could have bought a cheaper one if he wanted to (and vice
versa).

The tax system does not discriminate; it does not differentiate between people. In this
example we have two goods that “essentially” fulfill the same function. In practice, there are
numerous examples where the tax system treats people with different tastes differently –
higher taxes on concentrated alcoholic beverages discriminate against people who prefer
Scotch whiskey to French wine or Bulgarian beer.

Domestic Resource Mobilization as an Instrument of Sustained and Inclusive

Development

Domestic revenues can lead to improved development only if they are translated into
productive and beneficial public expenditure. For this reason, both sides of the fiscal
equation—revenue and expenditure—need to be examined together. However, both
governments and donors tend to analyze revenue generation and public spending separately,
except when it comes to their joint effects on macroeconomic stability and income inequality.
As a result, either revenues are taken as given or spending is considered without addressing
the tax policy and administrative measures needed to yield the requisite resources.
Considering tax and expenditure policy issues jointly greatly enhances the likelihood of
achieving revenue sufficiency for sustained economic and social development. The two goals
are linked and should be addressed in tandem. Both revenue and expenditure reforms should
therefore be embedded in broader public financial management reforms. When this is done,

6
Stiglitz, Joseph, Economics of the Public Sector. University Publishing House “Stopanstvo”, S., 1996 (1988),
p. 465. (in Bulgarian)
domestic resource mobilization (DRM) rightly becomes a development tool for generating
revenues to support sustained and inclusive economic development. At sub national levels in
most LMICs, public expenditures have been growing in quantum and importance. The
provincial and municipal governments provide critical services to the population and need
commensurate resources to be able to do that. They may use some of the same revenue
instruments as are used by the central government, such as income tax, value added tax, or
sales tax, but they also use a different set of taxes, such as property taxes, and nontax
instruments, such as user fees, that constitute an important source of revenue. Sometimes,
they receive part of the rents from natural resources. The role of sub national governments in
mobilizing revenue as well as in spending on service provision should therefore be part of the
broad DRM agenda.

Taxation as a Plank of State Building

The state-building process involves ongoing negotiations between the state and its citizens.
On the one hand, tax reform is influenced and guided by the political economy; on the other
hand, taxation can be instrumental in the state-building process in a variety of ways,
particularly in LMICs. As government depends on taxes and on the prosperity of the people,
it has a strong incentive to promote economic growth and engage with the public. This
dependence leads to accountability and responsiveness on the part of the state.

Taxation may also help to introduce good practices within different parts of government. For
example, in many countries, the introduction of unique taxpayer identification numbers has
strengthened other parts of the public and private sectors, including municipal governments
and commercial banks. Tax systems build databases that are essential for broader economic
and administrative management. Tax reforms emphasize merit-based hiring and performance
management, which are highly relevant to other agencies and departments in government.
Tax reform should, therefore, be seen as an essential part of state building

“Sin” Taxes and “Green” Taxes:

Tobacco and Pollution-Related Taxes Sin taxes are primarily taxes on cigarettes, alcoholic
drinks, sugar-sweetened beverages (in some countries), motoring-related activities (largely
taxes on gasoline and diesel fuels), and, to a lesser extent, betting and gambling. Green taxes
are primarily excise taxes, such as a tax on carbon dioxide emissions, which is rare in LMICs.

In the case of goods that cause harm, like tobacco and alcohol, and goods that pollute the
environment, such as motor fuels, fertilizers, and plastic bags, consumption taxes in the form
of excises help to restore the market equilibrium to its optimal level. In the absence of any tax
on these products, the market ignores the cost of negative externality and produces beyond
the optimal level of quantity, imposing an inefficiency cost on the economy. These taxes not
only enhance economic efficiency but also generate more revenues. The challenge is to assess
the extent of distortion created by the negative externality and to arrive at the right level of
tax. For tobacco, in particular, the price elasticity of demand is quite low, and the tax has to
be high to curb consumption, which would yield higher tax revenue, while eroding the tax
base as consumers gradually change habits.
Before the Second World War, excises on sin goods were of greater importance in OECD
countries than taxes on motoring and pollution, but now the reverse is true. The excise tax
rate on gasoline varies greatly across countries. Similarly, taxes on alcohol have become
more prominent than taxes on tobacco in LMICs because of a decline in smoking. Again, the
tax rate on tobacco and alcohol also varies significantly across OECD countries.

In LMICs, tax rates are relatively much lower, and there is large scope for heavily taxing
both sin goods and polluting agents. Environmental taxes have recently received a great deal
of traction since the realization that environmental degradation not only is a global threat but
also lowers a country’s GDP in the medium and long run. For LMICs to achieve sustainable
growth and development, tax reform needs to have an element of environmental taxation.
Many tax instruments employed by HICs may serve as a model for LMICs.
CONCLUSION

Today, the idea of welfare implies an income transfer through taxation from people who
have earned it to members of a subgroup who are adjudged to need income but who have not
been able to earn it through their own productive efforts in the marketplace. Today's domestic
welfare and foreign aid programs redirect tax money to others. Today, progressive taxation
is seen as a means to achieve social justice. The inherent assumption of progressive taxation
is that the rights of the wealthy minority are not as inviolate as the needs and wants of the
poor majority. Under such a system, there always exists the temptation to raise tax rates on
the more productive in order to pay for new social programs that transfer funds to the poor.
The result is a growing tendency for state supervision of welfare and prosperity to be
substituted for personal responsibility.

The objective of income taxation policy should be to obtain sufficient revenues to run
legitimate government programs. Unfortunately, during the 20th century, there has been an
increased willingness to use the tax law to affect a variety of economic and social changes
through the addition of a number of secondary tax objectives such as: 1) encouraging growth
(or slow down) in the U.S. economy; 2) promoting short run stabilization of the economy and
controlling the price level; 3) providing social justice through the redistribution of wealth; 4)
preserving the competitive position of small firms; 5) encouraging the growth of certain
industries and certain segments of the economy and discouraging the growth of others; 6)
promoting employment; 7) promoting (or discouraging) the investment of risk capital; and 8)
helping to serve ever changing national priorities. Taxation should not be used as a tool for
effecting economic changes by altering consumption patterns, redistributing income and
wealth, providing jobs for the unemployed, stimulating business spending, etc.
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5. Kailash Rai, Taxation Laws, 2014, Allahabad Law Agency.