Equity, Efficiency, and Income Tax Theory: Do Misallocations Drive Out Inequities

The standard traditionally employed by tax theorists in assessing the federal income tax is equity, but a new generation of theorists argues that ostensible inequities are converted by the market into inefficiencies. These opposing theories are based on divergent behavioral assumptions: equity theorists usually assume that the economic burden of the tax falls on the nominal taxpayer, while efficiency theorists usually assume that the burden is partly or wholly shifted by the nominal taxpayer to customers, suppliers, or others. This article examines the relationship of these conflicting assumptions to the conclusions reached by equity and efficiency theorists

The $10,000 Annual Per-Donee Gift Tax Exclusion

Since 1932 the gift tax law has contained an annual per-donee exclusion,designed to obviate the necessity of keeping an account of and reportingnumerous small gifts. \u27 At its inception the exclusion was fixed at 5,000dollars per donee per year-- sufficiently large to cover in most cases weddingand Christmas gifts and occasional gifts of relatively small amounts. The 5,000 dollar allowance was in effect for the period 1932-1938; but because this amount was regarded as unreasonably large in view of the frequency with which donors are induced by the exemption to build up estates of considerable size for the members of their families, the exclusion was reduced to 4,000 dollars for the period 1939-1942. In 1942, noting once again that the exclusion enabled donors to distribute large amounts of property free not only of gift tax but of estate tax as well, but acknowledging that administrative difficulties prevented abolition of the exclusion, Congress reduced the amount to 3,000 dollars. In 1981 this amount was increased to 10,000 dollars for post-1981 gifts to reflect the reduced purchasing power of the dollar. The dollar amounts applicable to earlier years, however, continue to control when gifts are cumulated over the taxpayer\u27s lifetime in making the tentative tax computations required by Internal Revenue Code (IRC) section 2502(a)

Tax Reform and Tax Simplification

Neither tax simplification nor its mirror image, complexity, is aconcept that can be easily defined or measured. I know of no comprehensiveanalytic framework for these ideas, nor are there anyempirical studies supplying a simplicity index of particular areas oftax law and practice. Journalists often ridicule the Internal RevenueCode by pointing to lengthy involuted provisions and to definitionsthat refer the reader to other definitions that in turn compel him to goeven farther afield. A favorite example is the 554-word sentence thatmakes up Section 341(e)(I). But these statutory intricacies may in fact be of minor importance, if they are addressed to tax experts concernedwith transactions that rarely occur; and they may even clarify the law,despite their initially baffling phraseology. Sections 671-675, for example,are intricate provisions. As compared with the pre-1946 lawgoverning income-splitting trusts, however, their message is crystalclear.The statutory language was simpler in earlier years, but thetaxpayer and his adviser had to weigh the implications of hundreds ofjudicial decisions, most of which simply announced that all of therelevant facts and circumstances were to be weighed in determiningwhether the income of a trust was taxable to the grantor or to itstrustee and beneficiaries. The 1945 regulations and 1954 statutoryrules that replaced these judicial decisions were complex, but theymade it much easier to find one\u27s way through the wilderness. On theother hand, elaborate statutory verbiage can be a source of complexityand an obstacle to simplification; I will offer some instances later inthis paper

Charitable Gifts of Income and the Internal Revenue Code: Another View

In the November, 1951, issue of this Review Dean Griswoldcommented on two controversial recent rulings of the Treasury.His remarks were partly prompted by a criticism of theserulings by Mr. Robert N. Miller, whom Dean Griswold felicitouslycalls the dean of the tax bar, in the Tax Law Review. May Itake issue with both deans and toss a brickbat in passing at theTreasury