Abstract

Unlike the traditional earnings tax which is based on the individual’s actual income, the endowment tax is based on the individual’s maximum potential income. The endowment tax raises a frightful prospect: an individual taxed according to her potential income as, say, a corporate lawyer might be forced to give up her preferred occupation as a philosophy professor and to work as a corporate lawyer in order to pay her taxes. Although this seems to be an impermissible intrusion on freedom, the challenge is to specify why the endowment tax is impermissible in a way that does not rule out all forms of taxation. After showing why the solutions put forward by John Rawls and by Liam Murphy and Thomas Nagel fail, I provide my own solution. I claim that the endowment tax is impermissible not because it forecloses more options but because of which options it forecloses. Thus, in order to explain the impermissibility of the endowment tax, we first need to distinguish the options to which individuals have a legitimate moral claim. I suggest one way of drawing this distinction by appealing to two principles widely embraced in the philosophical literature. If my argument is right, then the income tax as it is currently implemented is also morally impermissible.