Equal Sacrifice Theory

Equal sacrifice theory maintains that all members and sectors of society should make equal sacrifice for the common good. This theory has been critical to political economy since the 18th century, particularly as it pertains to taxation. Yet the idea is broader than the economics of taxation: Both the Old and the New Testament of the Judeo-Christian Bible emphasize charitable personal sacrifice—the Hebraic requirement of tithing and Jesus's parable of the poor widow giving up two coins to the collective pot; the idea even appears in 20th-century American poetry—in Robert Frost's “In Equal Sacrifice.” In economics, equal sacrifice theory developed from historically and ethnically diverse strains: the 18th-century Frenchman Jean-Baptiste Say; the Swiss Jean-Jacques Rousseau; and the British William Gladstone, John Stuart Mill, and F. Y. Edgeworth. Throughout the 1900s and into the 21st century, American and British tax debates have employed equal sacrifice arguments over the costs and burdens of pre – and post–World Wars I and II and in equitably sharing the costs of ongoing, global military conflicts and commitments for the greater good.

Equal sacrifice is subject to differing interpretations yet is often measured in absolute, proportional, and marginal terms: (1) equal absolute sacrifice (where each taxpayer surrenders the same degree of utility that one obtains from one's income), (2) proportional (where each sacrifices the same proportion of utility from one's income), and (3) marginal (where each surrenders the same utility from one's income). Typically, vertical and horizontal notions of equality enter into these analyses. Equal taxation (equal treatment of equals, dissimilar treatment of dissimilars) reflects horizontal equality; progressive treatment of unequals (rich vs. poor) reflects vertical equality. A “flat tax” indicates horizontal equality and “progressive taxation” indicates vertical equality of sacrifice. Political economists use equal sacrifice theories to balance the social benefits of equality with incentives to work and to profit from one's labor and productivity.

Although Smith's 18th-century maxim says that taxation should place the same pressure on everyone, as nearly as possible, equal sacrifice theory was not fully developed until it incorporated the “ability-topay” principle into a standard theory of political economy, Mill's The Principles of Political Economy, [Page 774]Book 5. Often viewed as the most equitable taxation policy, still used in most industrialized economies, this principle holds that taxation be levied according to one's ability to pay, making the wealthier pay a proportionately higher tax toward the national tax demand. Determining a fair measurement of input according to one's economic contribution, labor, and production and assessing equal values and tax burdens across such disparate bases are problematic. Government must also determine how the inequality of differing tax burdens and benefits, sacrifices and payouts, would yield economic growth without social exclusions and curtailment of individual freedom. Equity and efficiency then are not equivalent factors in evaluating equal sacrifice.

A progressive tax system seems equitable under utilitarian ethics, because under the general happiness principle, tax burdens are assigned only to maximize general welfare. The modern theory of income tax progressivity begins with the utilitarian calculation of the sum total of benefits and costs, viewing unequal taxation as the trade-off between the social benefits of an equal distribution of after-tax income and the potential fiscal damage imposed by highly progressive taxes. The result is not equality but a leveling of higher incomes, which leads to minimum aggregate sacrifice.

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