We present a novel argument in support of Rawls’s property-owning democracy by articulating a fiscal contract embedded within the broader framework of the social contract. Justice in both the distribution of the benefits generated by society’s background institutions and the allocation of the tax burden depends on the validity of the reciprocity principle, as upheld by the fiscal contract. We propose the development of a Democratic Welfare State model as a pragmatic approximation of property-owning democracy. The Democratic Welfare State establishes a set of minimum institutional requirements designed to counteract the effects of market-captured democracy: restoring a comprehensive income tax; reaffirming the link between taxation and public spending; complementing the ability-to-pay principle with a renewed focus on the benefit principle; eliminating unjustified preferential tax treatments; ensuring universal access to core welfare programmes; defining the conditions under which a basic income or minimum wage could be implemented; and rethinking the international dimension of the social contract.