the former are unable to take advantage of the possibilities to avoid paying taxes. The term “Dummensteuer” (idiot tax) has also been used in this context. The term “just” also means not over-regulating the system of taxation, but rather keeping it manageable and comprehensible for the majority of taxpayers.
In addition to excessive regulations for individual cases, another reason for the complexity of our tax system is the fact that the assessment of taxes not only serves as a source of income for the state, but rather is used economically and socio-politically to steer the actions of individuals. Taxes are meant to guide behavior. Instead of enacting imperatives and prohibitions, the legislature encumbers undesired behavior with additional taxes and promotes desired behavior and those goods worthy of such promotion (so-called merit goods) with tax relief (e.g. lower value-added tax of 7 % for foodstuffs and magazines, instead of the normal 19 %). Thus, the state not only pursues fiscal interests, but also steering objectives as well (e.g. the restriction of cigarette consumption with the tobacco tax, or the promotion of energy saving with the ecology tax).
1.3The three tax disciplines
In light of the allocative and distributive importance of taxes for the state and its economic actors, several scientific research facilities address their effects, their application, or their distribution. The tax disciplines can be broken down into the three sub-areas: tax law, financial science, and business taxation. The object of experience for all three disciplines is the phenomenon “taxes”, although the respective subject matters of their research differ. The demarcations between the individual areas are fluid.
The discipline of tax law considers taxation to be a legal process. This discipline concentrates on the legal aspects of taxation and is concerned with the relationship between the state and its citizens with regard to taxation. The subject matter includes issues in the construction of tax provisions or the examination of their conformity with the constitution and/or the law of the European Union.
The discipline of financial science forms part of political economics and is thus macro-economically orientated. The economic actions of the state form the object of knowledge, to the extent that earnings and expenses are included. The discipline of financial science addresses, for example, issues involving the just distribution of tax revenue or the minimization of negative effects of taxation on production, consumption and competition (influence on the allocation of resources, minimization of deadweight loss).
The subject matter of business taxation is the examination of effects of taxation on the business activities of companies. There are four main scientific areas of research within the discipline of business taxation:
•Problem-oriented assessment of tax law (presentation of legal norms): Knowledge of the most important national and international tax provisions is of fundamental importance for the discipline of business taxation.
•Theory of tax effects in business economics: Analysis and description of the influence of taxation on the variables of fundamental importance to decisions made by economic actors.
•Theory of tax planning in business economics: Advice for the decisionmakers of a company in exercising options under tax law and in the arrangement of planned circumstances in order to minimize the total tax burden.
•The evaluative-normative theory of business taxation: Critical opinions on the current state of tax law (de lege lata) as well as planned changes (de lege ferenda).
It is an indispensable prerequisite to first examine tax law in terms of a portrayal of legal norms because tax law constitutes, on the one hand, the framework within which fiscal arrangements are made and, on the other hand, the instrument of such arrangements. Building on this, the effects of taxation can be examined for subsequent targeted tax planning afterwards.
Note
There are three different tax disciplines:
•Tax law
•Financial science and
•Business taxation
1.4The tax system
1.4.1Earnings of the state
The public sector is financed by public and extraordinary earnings. Ordinary earnings end up with the state and are thus available to the state indefinitely. A difference must be drawn between earned income of the state and (sovereign) compulsory levies. Earned income of the state is acquired by the public sector’s participation in the market, e.g. by way of private businesses with public shareholding (Deutsche Post, Deutsche Bahn, Deutsche Telekom, as well as banks, research centers, harbor companies, airport companies and construction companies, etc.). Compulsory levies are divided into taxes, fees, contributions and special duties. Extraordinary earnings are only available to the state temporarily and must be paid back when a certain deadline has been reached. These extraordinary earnings also include public borrowing.
Figure 4: Possibilities of financing for the state
1.4.1.1Taxes
Taxes make up the largest portion of state earnings in all industrial countries, including Germany. According to the legal definition contained in Sec. 3 (1) AO (The Fiscal Code of Germany), taxes are “payments of money that do not represent counter-performance for a particular performance and that are imposed by a polity on all those who fulfill the statutory requirements for the tax liability, in order to generate income”. The term “tax” possesses the following characteristics:
•Compulsory levies: Taxes are levied by public corporations by virtue of their financial sovereignty. The taxpayer is to pay these levies if certain statutory requirements are fulfilled. It is not voluntary.
•Payments of money: According to their definition, taxes are payments of money, not performances in kind. They can be payment obligations that occur once (e.g. inheritance tax, and land transfer tax GrESt) or periodically recurring payment obligations (e.g. income tax, corporate income tax, and trade tax).
•No counter-performance: Taxes neither establish an entitlement to counter-performance by the state, nor is the level of taxes calculated directly according to the public services received by the taxpayer. Thus, taxes are not calculated in accordance with the equivalence principle.
•Public polity: Tax sovereignty is a prerequisite to levying taxes. In Germany, this is vested in the federal government (Bund), the federal states (Länder), the municipalities (Gemeinden) as well as those religious communities that possess the status of a corporation under public law.
•Statutory basis: Taxes must be levied from all who fulfill the statutory requirements for the tax liability. Taxes may not be levied in the absence of a statutory basis.
•Realization of earnings also as secondary objective: Taxes not only serve in the realization of earnings, but also economic- and socio-political (steering-) purposes. For this reason, the discipline of
