islawmix: How does Islamic law propose the government deal with unemployment? Is there a system of tax collection based on income? And what does Islamic law say about wealth redistribution?

Fadel: There are no bright line answers to these kinds of questions from the structure of Islamic law. Certainly, in the pre-modern period, it would’ve been a strange notion from the perspective of the jurists that the government had a responsibility to do anything approaching full employment. An agrarian economy wasn’t really subject to the kinds of business cycles that we have in a modern capitalist economy. They did believe that there needed to be a social safety net. You can find that in the Islamic conception of the zakat.

islawmix: Tell us more about zakat, which we understand requires Muslims to pay 2.5% on excess wealth, with an additional 20% for Shi’i Muslims.

Fadel: The way zakat worked in classical Islamic law was that any person (at least according the Malikis (a school of Islamic law)), any person who could not provide for himself for a period of a year was entitled to receive support from the public, from the government. Essentially there was a very loose standard, in that people did not have to prove they were poor in order to be entitled to relief, they basically just had to claim that status. People were taken at their word at being impoverished and lacking and therefore being eligible for relief. Second, as a matter of Islamic political practice or political culture, in the pre-modern era, particularly in the cities, there were these very big charitable endowments that were set up to provide poor relief, beyond that which zakat could do. So, soup kitchens, distribution of bread, provision of medical services at their time – all these were distributed for free to the urban poor. Finally, one could say that in Islamic law, there was not a bright-line rule, but there was a rule of thumb, an important principle of distributive justice, that one begins--when it comes to distributing public resources--with the least well off in society. The people with the greatest claim to public support are those that are least well off. And only after you meet the needs of the least well off can you then think about other things. That suggests that Islamic law, in general, would support a more interventionist approach to the economy, a redistributionist approach, in which progressive taxes are used to raise funds to support those less advantaged.

islawmix: Would this affect the obligation of American Muslims to pay taxes on either plan? Are there Islamic legal perspectives on taxation that might inform Muslim choices between these two plans?

Fadel: There are some Muslims who take the position that the only kinds of taxes that one is morally obligated to pay are the taxes that are religiously obligatory in Islam, namely the zakat. Of course, that is not nearly sufficient to finance the needs of a modern welfare state and to finance the social safety net. I think the best position within a contemporary understanding of Islamic law is that it needs to be supportive of progressive taxation up to such point that it doesn’t undermine the efficiency and growth level of the economy. And then the receipts that are used from that need to be given to those who are otherwise disadvantaged in the economy, marginalized in the economy, who have been the victims of circumstance or bad luck, and need assistance, etc. That is very much in the spirit of zakat, even if it goes well beyond its literal terms. The modern income tax system obviously goes well beyond anything that Muslim jurists developed, but it’s basically, in my opinion at least, consistent with its spirit, because the whole idea of zakat is that it is not charitable, it is not something that is given out of the grace of the wealthy to the poor, it’s a claim that the poor have against those with surplus wealth. That’s basically the idea of progressive income tax. Those who have been given much have been given greater responsibility.

islawmix: The Qur’an specifies a prohibition on riba – a little understood term that has been understood as excessive interest, usury, and risk. How would conceptions of economics drawing upon principles outlined in Islamic law inform Muslim orientations to fiscal policy, including the importance of, or desirability of, a balanced budget?

Fadel: Our economy is infinitely more complex than any kind of economy that existed in the classical age of Islamic law. I really don’t know of any discussion by Muslim jurists about government borrowing and balancing the budget. I do know that they, from time to time, say that under certain circumstances the government is obliged to borrow money if that’s required in order to further the public good, or satisfy the rights of citizens that otherwise would be left unfulfilled. For example, in the case of abandoned children, it’s the responsibility of the state (in Islamic law) to finance their education and their living expenses until they get old enough to work for themselves. If the public treasury lacks sufficient funds, they said that the government has an obligation to borrow in order to be able to meet the needs of these abandoned children. So I don’t think there’s anything in Islamic law that creates a rule that governments can’t borrow and can’t run deficits, but as with lots of things, things have to be run prudently. It’s really a question for economists to answer – are the kinds of debts that the government is running sustainable? Are they prudent? Are they being used to finance the public good, or are they being used to finance things detrimental to the public good?