Tuesday, August 12, 2014

An "All of the Above" Taxation approach

I wish to call attention to a paper written by my co-blogger David Gamage, Analyzing the Optimal Choice of Tax Instruments: the Case for Levying (all of) Labor-Income taxes, Value-Added taxes, Capital-Income Taxes, and Wealth Taxes. His argument is that although different taxes may be distortionary, there are some real-world issues with the purely theoretical treatments as a basis for policy. Enforcement is one of those pesky real-world problems. 

I see only one problem with wealth taxes: international tax havens. Otherwise, it seems
straightforward to tax wealth. Am I wrong? If not, then it is true that wealth taxes could be a central part of Treasury diet, if some international coordination could be achieved. That doesn't seem politically crazy to me.

It seemed that for a time, there was this notion that using the tax code to implement policy was a dangerous and wrong-headed thing. That concern seems to me to have disappeared entirely. It would seem to make sense, however, to reduce the number of objectives of tax law. I have just two in mind: revenue raising and wealth distribution. Hence, a wealth tax. 


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The main U.S. obstacle to a wealth tax is the constitutional requirement that "direct" federal taxes be apportioned (which in modern practice means that direct taxes are unconstitutional). No one really knows what a "direct" tax is, but early authorities agree that a tax on the mere ownership of land indeed is direct. On the other hand, taxes on transfers of wealth, such as an estate or accession tax, are not direct. So the trick is to design the wealth tax in a way that would be workable within existing doctrine; there are a couple of folks who have written articles on that.

Posted by: BDG | Aug 13, 2014 1:11:23 PM

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