Tax Contract Theory Study

According to the tax contract theory, paying tax is a trade for taxpayers to buy the public product and service offered by government, that is, tax is the price of public product and service. Because the nation always appears as the ultra-society, the true relationship between taxpayers and the nation has been covered up, and paying tax has been regarded as one-sided free behavior, which causes the three features of tax—free, mandatory and fixity. Thus, the taxation and the public financial power of government, which is the commissionaire of public interest, have been emphasized excessively. On the other hand, for the supervision and restriction rights of taxpayers have been weakened, the government public budget has appeared the trend of soft restriction. Tax contract theory has reconsidered the essence of taxation from a brand-new view. It is thought that taxation is a kind of commission for government to offer public product and service, which is indispensable to market. Though taxation is a kind of one-side transfer of wealth based on the need of buying public product and service, however, taxpayers haven't given up the ownership of it. For this reason, from more extensive meaning, taxation is more related to the equilibrium of right and obligation between taxpayers and government. And among all the problems related to wealth, the most important one is its ownership. It is a natural selection that the personal property is prior to the governmental property, and the governmental property is just an institutional arrangement to realize personal property. For the market cannot offer the public product and service to satisfy their self-existence and self-development effectively, which means the market has no efficiency, the public has chosen to pay tax voluntarily, and also chosen government. Regarding the relationship between taxpayers and government, the owners of the wealth (including the tax) can only be the taxpayers; government is only a commissionaire, which is to maximize one's own welfare on behalf of taxpayers. Paying tax is just a second-class excellent result for the public to exercise their right of ownership freely. As reflecting the connotation of democracy and market, the tax contract theory thinks the public are the final owners of social wealth. They have the right to manage their wealth freely. The appearance of tax is just because they would like to expend a small part of wealth on the setting up and keeping of an"essential and evil government"to the maximum of their own welfare. Government is the organization under the public's common management. Its behavior of taxation and public finance must safeguard the owner's rights and guarantee that their devotion has got the equal or more repayment. Meanwhile, taxpayers also undertake a series of opportunity costs out of paying tax and fulfilling contract risk.In fact, it is the taxpayer who will transfer one part of his own wealth---tax, to government voluntarily. It has no big difference between taxpayers using this part of wealth on other aspects. It's also based on the principle of maximizing one's welfare and utility. However, it's still different from using this wealth on pure market, for one belongs to personal choice and contract on market; the other is the public choice and contract on taxation.From the point of government, though it is unable to count out the exact amount of public demand, government does really have advantages in offering public product. Because of public products'non-exclusiveness and non-competitiveness, government cannot offer different amount of public product. The feasible method is to tax by authority. The taxation power of government comes from public authority; however, the public remain the highest power---the legislative power. Once the government has not satisfied the expectation of the public, the public can limit or even change the government through legislative procedures.From the point of taxpayers, imagining at first, one has the freedom to control and apply his whole wealth; he would invest it in any field unrestrictedly. However, it has been proven that the fact of the public pay tax and government offers public product is the second-class excellent choice for the personal wealth management target. Thus, the public choose to pay a part of their wealth on the public organization---government. It's the result of human's self-development, including a large number of human rational factors.The realistic meaning of tax contract theory in promoting Chinese economic and politic reform is that it's a re-clarification of government and taxpayers'interest pattern, has re-expounded their original positions in each interest relationship, impelled the government to reform itself conscientiously, weakened or even cancelled the power without responsibility, and offered new thinking and theoretical foundation for system innovation. However, it's a long way to adjust the interest pattern, including a series of change of government's idea, function and mode. It's important for the government to realize the positive effects of people, and to change its stress from publicly-owned capital to the folk capital. Government must go back to the position of serving taxpayers, offer satisfied public product and service with high efficiency. In order to prevent public power from encroaching on the interest of taxpayers; government must disclose the ways of tax collecting, using and administration, make them under the effective supervision of taxpayers, and make sure the transferred part of wealth gets its equal or more repayment. All these has great relationship with the national civilization, thus promotes the forming of government's politely administration, taxpayers'civilized tax paying and harmonious society. It's also the prerequisite and expectation of the analysis on tax contract theory.Tax contract theory tallies with the idea of our Party about setting up a harmonious society. The General Secretary Hu Jintao proposes:"……The socialism that we will set up is harmonious, it should be democratic and legal, fair and just, sincere, dynamic and stable in order ; people and government get along well.……" It is obvious that the harmonious society includes three parts, i.e. the harmony between people and people, between people and society, between people and nature.Tax contract theory emphasizes to construct a kind of order based on freedom, equality, sincerity and legality. It also emphasizes that one should pursue one's maximal welfare under the orderly environment. Because in the course of pursuing one's own maximal welfare, there still exists a small part of common profit, which is also an important component of self-welfare. However, this part cannot be offered by individual directly; therefore, the public agree to transfer some private interest to the nation. But, the cost for operating government needs a legal standard. The individual transfers his private wealth as the expense of the public product and service according to the standard of tax laws made by the legislative authorities. This has formed the tax contract relationship between the nation and the public. This tax contract relationship is highly identical with the idea of harmonious society. Firstly, from the intension of harmonious society, it includes three parts, that is, people and people, people and society, people and nature. The interpersonal harmony is the most basic relationship among the three, and its harmony mostly depends on the relation between people and government. Among modern society, whether the public relation is harmonious can also be proved from the change orbit of government administration view. The administration mode of all the nations, which advocates democracy, has changed from"rule administration", to"management administration", and finally to"serving administration". It's just the route that towards harmony. The focus of relation between the public and the government concentrates on the problems of"common right and private right","personal proprietary and public proprietary"etc, which are relating to tax. Review from the whole human development history, the government that extorts too much from the public of course would worse the relationship between people and government, even resulted in the change of regime; however, the government that cares a lot for their people would get the harmonious relationship between people and government, and would reach the state of prosperity and happiness. So, we can see, the harmonious society is a great system. The relationship between people and government is a subsystem of it. Its harmony influences the whole system's harmonious degree directly. The contents of tax contract theory, such as civilization of government, sincere levying and using tax, are to explain and construct harmonious relationship between people and government. And also, it especially emphasizes the important influence of government's civilization to taxation civilization, government's legality to taxation legality. Secondly, according to the harmonious social law, the harmonious society is a society of democracy and legality. However, because of thousands of years'influence of the feudal"officers'standard"doctrine, in our country, the relationship between people and government is easily misplaced as"power is the highest","government is the highest","government's authority","government elite", etc. The meaning of harmonious social law reveals that democracy and legality first should guarantee that people are the hosts, which means respecting the people's independent personality and democratic rights, respecting and safeguarding the public social right of being known, participating, expressing and supervising, under the base of fully developed democracy with all the positive social factors. Meanwhile, the democracy should combine with legality together, making the operation of society submit to the authority of legal system, law higher than favor, law higher than power, thus make sure the basic strategy of legal administration conscientiously. The principle of tax contract theory is exactly the same with the harmonious social law. It proposes that people are the owners, holders and clients of all rights and interest. Right is prior to obligation. Government is just the agent and subject of public interest. The administration of government, levying tax of taxation department and using tax of financial department are all should follow the law. At the same time, for their public power is awarded by people, the exercising of public power should be also in accordance with the law that reflects the fundamental interest of the public. Thirdly, the harmonious society is a sincere society. Sincerity is one of its ethic codes. The modern credit system is the important pillar of the socialist marketing economy system. One of the outstanding problems in the economic development of our country is the lacking of credit system. It's important for us to set up and improve the personal, enterprise's and government's credit system, to lower down the social transaction cost, and to raise the efficiency of social resource disposition. In order to solve this problem well, one should emphasize the whole society"to take morals as the support, to take the law as ensure and to take the harmonious ownership as the system foundation". Tax contract spirit not only emphasizes the civilization of paying taxes, but also stresses on the government's civilization more. The soul of contract spirit is sincerity. Only based on sincerity, can form the contract relationship; otherwise, the contract relation would be very fragile without strong power, it cannot lasts long. Finally, besides people and people, the harmonious society has includes the harmony between people and nature. The whole human development history tells us that the development of the human society is a constant process of pursuing various values and satisfying human's pluralistic demand. The one-sided pursuance of economic value would result in the destruction of nature, which would threaten the survival and sustainable development conversely. Therefore, human beings have realized the importance of nature, and the human plural demand content has included the environmental demand. The prerequisite of tax contract theory is that individual behavior is combined with two rational forces together---"economics"and"morals". Well, the value that one pursues is plural. It includes multi-welfare indexes, such as economic value and environmental value. Moreover, this kind of comprehensive welfare index would increase new content with the change of objective condition. In this situation, tax contract theory also includes the harmony between people and nature.Based on the above introduction, this thesis has formed one intact system of"the proposal of tax contract, practice of theory and realistic meaning". It includes seven chapters. The main body is from chapter two to chapter seven and the chapter one is the introduction part. The analysis frame on tax contract theory: Chapter one is the introduction. In this part, the author introduced the research basis, relevant literatures, realistic meaning, basic conclusions, innovation intensity and the insufficient parts of this thesis.Chapter two is the thought origins and comments of tax contract theory. Tax contract theory has its own foundation. We can find its clues in the theory of enlightenment, classical economics, contract economics and modern public product theory. For example, Hobbes thought tax was actually paid to taxpayers themselves according to the contract set down by the public; Rousseau thought each member devoted all his body and strength, including his property to this community at its beginning, but, it doesn't mean the nature of this possession has been changed to one part of the sovereign; Locke thought that the property right was inherent in the public, and it was prior to the government. So, the tax collecting of government should be limited by the inherent rights of people; though Smith hasn't put forward the concept of public product clearly, his four taxation principles have included the content of public demand, which has formed the base for public product theory. The public theory and the school of public choice have put forward the theory of public product's price directly. These classical theories all form the foundation of tax contract theory.Chapter three is the assumptions of tax contract theory. It's common for setting some assumption prerequisites while making theoretical researches, and then drawing the important conclusions. This thesis not only includes the general assumption prerequisites of economics, but also some special ones for the analysis on public field. One of the important factors for this thesis is to take the human behavior as a whole unity. It's not allowed to adopt"two points principle"in the analysis of the human behavior in public field, i.e. the same person's behavior should have unity in both political market and product market. So, we say the people who participate in the political market should be the unity of"economic people"and"moral people". In addition, considering the basic feature of contract---freedom, we should also propose one in tax contract theory, i.e. democratic government theory. In essence, taxation is the rational decision made by taxpayers, and the standards of taxation are made by the legislative authorities on behalf of the public. Therefore, tax contract theory has highly freedom. It should be especially pointed out that the public have the right to re-legislate the unwilling tax contract theory. This has guaranteed the freedom of tax contract theory to greater extent.Chapter four is the proposal and theoretical analyses of tax contract theory. Because the traditional tax theories have attributed the tax laws to the field of public laws, and the research of taxation has not drawn the principles relating to property right, this thesis starts with criticizing the traditional taxation science, points out that the contract is not just for the field of private laws and the public field also includes a large amount of contract methods and spirit. This thesis also proposes the concrete pattern and application of tax contract theory, thus lays the road for the analysis of tax contract theory. Meanwhile, based on the analysis of law and economic meaning of ownership, as the owners of tax wealth, the taxpayers have the right to enjoy all the rights. In this way, it also solves the prerequisite of free contract. Under the two basic premises, the author has proposed both the broad and narrow senses of tax contract systematically, and then compared it with the general private contract, got the homogeneity and alienation between the two. At last, the author has set up one"double gaps"theory mode of supply and demand of public product. No matter what kind of contract, the most important problems are its performance and precaution of breaking. The following chapters, from five to seven, are all around this theme, and offer theoretical foundation and practical methods to solve the problem.Chapter five is to improve Chinese nomocracy under the view of tax contract theory. Tax contract is a two-way behavior, so, the tax legislation should represent the public will. If so, it can establish the rationality and legitimacy in transferring the public wealth; it can change the mandatory collecting of tax to one's voluntary behavior; and it can solve the paradox of "obligation made out of enforcement."The tax laws that represent the public will form this thesis's narrow sense of tax contract relationship. It requires both sides to follow the clauses, and put forward the methods to improve our current tax laws under tax contract theory. On the other hand, according to tax contract theory, it's to realize the enforcement of tax law by the way of"consignation-agency". How to reduce the agency risk is the theoretical and practical problem of this part. With the support of theoretical model, the author suggests establishing the system of open-information, of law-enforcement responsibility and of advance pricing agreement. In the end of this chapter, the author points out that legislation is the prerequisite, enforcement is the key point, and justice is the guarantee. He also suggests promoting our nation's tax legislation by using contract spirit, and guaranteeing the carry out of tax legislation from both enforcement and justice. Actually, the content of this chapter also formed the safeguard of bilateral fulfillment of tax contract theory.Chapter six is relationship of tax contract and government fulfilling it. This chapter mainly explains how to fulfill tax contract effectively from the points of law, virtue and efficient government. Chapter five has solved the problems of legislation, enforcement and justice of tax contract, then, it's the problem of how to rule it by law. The author has pointed out that law is the essential way to administrate government and fulfill tax contract, however, not all the things can be solved by law effectively. Law comes from practice, and lags behind practice. At the same time, it is restricted by the internal system. So, tax contract theory thinks including the law, the public power of government should also be restricted by some moral criteria. Especially with the former assumption, the behavior of everyone, including civilians, is pushed by the combined force of"economic people"and"moral people". For this reason, on political market, we should emphasize on both laws and morals, strengthen the moral education of civilians, stress the construction of virtue rules and credit system of the government, safeguard the effective enforcement of tax contract from the angle of both law and virtue. However, it's not enough to ensure the owners'interest only with the legislative and moral government, because the rights of owners not only reflect on the possession of wealth simply. For the owners, realizing the equal or more repayment of the wealth is more important. For this reason, as the agent of public wealth, the government has the responsibility to use this part of wealth with high efficiency. So, according to tax contract theory, a responsible government should be the organic entity of law government, virtue government and efficient government. Only in this situation, can a government fulfill tax contract well. Chapter seven is relationship of tax contract and taxpayers'fulfilling it. In previous chapters, it mainly discussed about the problem of abiding of the contract by government, in addition, it has stressed on the restrictions of government's public power, the government's credit, and the demonstrated effects of government's behavior on the public. Since tax contract is a two-way behavior, it's not enough to stress on the performance and civilization of government unilaterally. Because of the internal features of public product, the taxpayers, of course, will have the motivation of"hitchhiking"between consume and payment. How to solve the real need of public product of the taxpayers (i.e. pay rationally) is the main problem of this chapter. Under the prerequisites of taxation civilization, the author puts forwards some political methods to improve our nation's taxpaying civilization, so as to ensure that the taxpayers would fulfill the tax contract better.Until now, this thesis has solved the"double gaps"problem between the fulfillments of tax contract with the supply and demand of public product; that is, when offers public product, the government should pay attention to the points of tax legislation, enforcement and justice, to ensure that the supply scale and quality of public product satisfy the will of the public. On the other hand, because of"hitchhiking", it's not easy to describe the demand curve of public product. However, tax contract theory shows that if a government is democratic, legislative, moral and with the trust from its people, the public will also display their real demand for the public product. Meanwhile, government should also strengthen the institutionalized construction of taxation civilization, force and induce the public to express their real demand for the public product, thus solve the fulfillment problem of tax contract better.At last, author points out that we should construct a harmonious society based on tax contract theory. It is the essence of the whole thesis. The key point for constructing a harmonious society is to set harmonious relationship among people, which mostly depends on the relationship between people and government. Tax contract has solved the problem of bilateral fulfillment in both theoretical and practical. It also forms a new taxation view in accordance with modern civilization, thus, sets up the harmonious relationship between government and people. This, of course, will influence the relationship between people and people, between people and society. In fact, the contract spirit itself is a kind of harmonious spirit, for harmony is the optimum state of the fulfillment of contract. In addition, the concept of democracy and legislation of harmonious society is exactly the content that advocates in contract spirit. Therefore, the conclusions of this thesis have highly identity with the intension of harmonious society.