Tax Legislation between Politics and Legal (and Economic) Thinking

The purpose of tax rules is not primarily to solve legal conflicts but to to provide the legal basis for tax collection and to distribute the tax burden in a fair and efficient way. Indeed, more often than not, too little attention is attached the problem-solving functions of tax rules; at least this is so in Norway. This is due to the fact that legislators normally are very concerned about the overreaching aims of the rules, often having too little time and attention to take care of the more legal aspects of the tax rules. An illustrative example is the process which lead to the tax reform of 1991 in Norway. The expert committee, chaired by then professor of tax law Magnus Aarbakke, was asked by the Ministry to deliver its report earlier than originally planned, and, as a consequence, the committee did not have time to spell out its proposals in statute text and specified comments. This probably had an unfortunate effect on at least one set of rules which was the result of the process: The purpose of the so-called division rules was to separate earned income from capital income, which was essential in view of the different tax rates which applied to those two categories of income. These rules turned out to be the Achilles’ heal of the tax reform: They were difficult to handle in practice and were very vulnerable for tax planning and lobbying. Ultimately, they were scrapped in the tax reform process of 2004-06. The reform of 1991 depended to a large extent on the existence of such rules but their ability to solve legal problems was not taken sufficiently care of in the process. Thus, in a way, tax law has always been proactive law – even if that term has not been used – and sometimes too much so. However, even if we focus on these overreaching functions of tax rules – tax rules as proactive law – and for a minute forget about problem-solving, there are interesting aspects to be studied. One important aspect is the relationship between the politics of taxation and the legal (and economic) thinking in the field of taxes. To be more specific: To what extent do legal (and economic) thinking influence tax legislation and to what extent are the tax rules a result of purely political considerations and compromises?