The 1982 Minimum Tax Amendment as a First Step in the Transition to a "Flat-Rate" Tax

The massive body of tax legislation enacted in the first two years of the Reagan Administration offers little guidance for predicting the future direction of United States tax policy. Dramatically different Congressional coalitions—each led by the President—passed by very narrow margins the nation's largest tax reduction (the Economic Recovery Tax Act of 1981) and then the next year enacted the largest peacetime tax increase (the Tax Equity and Fiscal Responsibility Act of 1982). In each case, short-term political and fiscal concerns dominated the debates. The 1981 legislation reduced taxes in an effort to stimulate economic activity and investment by according substantial tax relief to businesses and high income individuals; the 1982 legislation requires significant additional taxes from these same sources to reduce triple-digit deficits, a reduction also deemed necessary for economic recovery. Although the two Acts together provide for an overall reduction in business taxes and a phased-in decrease in marginal tax rates applicable to individuals, they impart the overwhelming impression that uncertainty, confusion, and inconsistency currently dominate the tax legislative process

Retroactivity Revisited

In three prior articles, I considered transitional problems of changes the tax law. My general analysis and its specific application to the adoption of a consumption tax were criticized last year in this journal by Avishai Shachar. By taking liabilities explicitly into account in considering tax transition rules, Shachar extended the fundamental principles generated by my theory of legal transitions. Shachar, however, misunderstood or mischaracterized much of my earlier work. In this comment, I respond briefly to Shachar\u27s criticisms. In Part I, I set out the context and conclusions of my general theory and suggest that Shachar agrees with its principal insights. In Part II, I show that, although Shachar correctly suggests that a comprehensive analysis of transitional rules must take liabilities into account, his central analytical premise – that [e]ach increase in the price of an asset has an equal and offsetting impact on the \u27burden\u27 of a liability – is surely wrong. I also demonstrate in that Part several difficulties with Shachar\u27s general approach to transitional problems. Finally, in Part I, I comment briefly on his specific recommendations for transition to a consumption tax