Friedrich August von Hayek, The Case Against Progressive Income Taxes (1953)

Hayek’s magazine review essay, presented here in the English translation of his 1952 Die Ungerechtigkeit der Steuerprogression, uses Walter J. Blum and Harry Kalven Jr.’s The Uneasy Case for Progressive Taxation to reopen a question he believes widespread acceptance has obscured: whether progressive taxation can be justified by principles of justice. Moving from criticism of its theoretical foundations to its political and economic consequences, he concludes with a proposed rule for limiting tax rates. His governing distinction is between progression in a particular tax and progression in the tax system as a whole. He allows the former when it compensates for other burdens, while opposing the latter as discriminatory redistribution.

The opening contrasts progressive taxation’s revolutionary role in Marx and Engels’s program with its subsequent respectability. Hayek praises Blum and Kalven’s examination of the arguments supporting progression, but reads their inconclusive affirmative case as grounds for renewing the objections against it. For him, generations of theoretical ingenuity have failed to reconcile the policy with the requirement that just laws treat people equally. Popular acceptance is therefore something to explain and challenge, not sufficient evidence of justice.

The first substantive section attacks marginal-utility arguments. Because utilities cannot be objectively compared between persons, diminishing utility cannot establish how their tax burdens should differ. Hayek also argues that utility expresses preferences between goods rather than an independently measurable quantity of welfare. Consequently, the diminishing marginal utility of income becomes meaningless if income includes everything a person enjoys. A narrower conception, excluding leisure or effort, permits meaningful comparisons, but does not determine the appropriate tax schedule.

The conclusion we must draw, it seems to me, is that in this connection we ought to leave the utility theory severely alone in the future and try to do our best to undo the disservice which its abuse has done in the past.

This rejection follows an incentive-based reversal: if richer people gain less utility from proportional additions to money income relative to effort, maintaining their incentive would require more than proportional rewards. The premises commonly invoked for progression could thus support degressive taxation instead. Hayek’s point is not merely that the calculations are difficult, but that sacrifice-based reasoning supplies no secure justification for the policy.

In “The Real Aim,” he argues that the controversy concerns redistribution of incomes, not simply allocation of an independently given tax burden. He credits Henry Simons with making the connection between drastic progression and opposition to inequality explicit. Yet Hayek denies that society possesses a standard of distributive justice independent of the market valuation of services. This is a central premise of his argument: without such a standard, progressive rates express political judgments about acceptable incomes rather than a demonstrable rule of justice. Majority power becomes especially troubling when voters can impose rates that apply exclusively to a minority.

Hayek then develops his own moral objection:

What is perhaps least understood is the strong moral case that can be made against progression, because it infringes the one basic rule of economic justice: equal pay for equal work.

His example concerns two professionals performing identical services in December. If one earned more earlier in the year, progressive taxation can leave that person with a smaller net payment for the December work. The objection extends to lifetime earnings concentrated in a few productive years: annual progression penalizes their timing relative to earnings spread evenly across decades. Hayek attributes this approach to a salaried conception of income, which measures remuneration by time rather than the value of particular services. He similarly interprets profits as part of a process reallocating capital toward successful producers, making their heavy taxation an impediment to risk-taking and capital turnover.

The section “How to Perpetuate Inequality” turns egalitarian intentions against their alleged consequences. Private property, Hayek argues, requires that successful individuals be able to accumulate fortunes. Preventing new accumulation can protect established differences in wealth rather than dissolve them.

By reducing vertical mobility modern taxation in fact perpetuates the inequality of individuals and creates a new rigidity of class distinctions.

International comparisons extend this argument. Hayek reports that the income at which a family reaches an average tax rate of 25 percent varies sharply between countries. He interprets heavier taxation at lower incomes in poorer societies as evidence that judgments of “excessive” income reflect local standards, discouraging wealthy people and capital where they are particularly needed. He acknowledges the need for better comparative statistics, while warning that progression also encourages an illusion that rising public expenditure can be financed principally by the rich.

The conclusion qualifies his opposition. Since poorer people already pay indirect taxes, some progression in income-tax rates may help make the combined burden proportional. Exempting low incomes therefore does not establish a case for a progressive system overall. Hayek proposes linking the maximum marginal income-tax rate to the government’s share of total income:

But that nobody should be taxed on his income at a marginal rate in excess of the share which the government takes, in one way or another, of all incomes as a whole, is a rule which may prove both generally intelligible and more practicable than any other.

The essay’s relevance lies in joining tax justice to constraints on majority power, incentives, and economic mobility. Its alternative is neither tax abolition nor an unconditional flat income tax, but proportionality across the entire fiscal system. The resulting argument depends crucially on Hayek’s identification of just remuneration with market-valued services and his rejection of an independent distributive standard—premises that organize both his criticism of progression and his proposed limit.