Core Principles of Taxation and State Funding

Fundamental Notions of Tax Law

Humans have multiple needs, both individual and collective. The logical framework for the current organization of social groups is the state.

The state requires funding to meet the needs of its people and has two primary options:

1. To borrow, either domestically or internationally.
2. To raise resources through taxes.

The Core Conflict in Taxation

A fundamental conflict arises between the state's need to mobilize resources and the perspective of individuals, who feel that taxes take away their money.

The Search for Equilibrium

The essence of tax law is the search for an equilibrium between the state and individuals. This involves answering three fundamental questions:

• What to tax? Before creating a tax, it is necessary to determine the object, which is the contributive capacity that will be affected (e.g., spending, consumption, income, or rent). This question leads to the precise taxable event.
• How much to tax? This question determines the tax rate.
• Whom to tax? This question identifies the taxpayer.

The Functions of Taxation

Taxes serve various objectives, for example:

1. Fiscal Function: The state raises money to fund public spending and balance the public budget.
2. Economic or Strategic Function: Taxes are used to guide the economy in a certain direction. For example, to protect a nascent domestic industry, tariffs (taxes on imports) can be created or increased.
3. Social Function: Taxation plays a redistributive role in national income, as it allows the state to finance public works and social programs.

The Power of Taxation

This is the power of the state to demand a tribute (tax) with respect to persons or property located within its jurisdiction.

Limitations on the Power of Taxation

The power of taxation has two major limitations:

1. Territorial Limitations: The power to tax can only be exercised within the territory of the state. In cases of conflict, disputes are often settled by international treaties.
2. Legal Limitations: These are constitutional principles that must be considered when creating a tax:
   • Principle of Legality: This means that taxes can only be created by law.
   • Principle of Equality: This means that everyone should make an equal sacrifice to build or finance the state.
   • Principle of Generality: This means that taxes should apply to the general population without contemplating prejudicial exemptions.
   • Principle of Non-Confiscation: Tax law aims to avoid overburdening individuals with taxes to the point that it effectively becomes a confiscation of their property. Taxes should be proportionate.