Introduction to the State of Federal Income Taxation: Rates, Progressivity, and Budget Processes

Many fundamental changes have occurred in our tax system in the past four years. These changes raise several important issues: Is it appropriate to decrease tax revenues in order to decrease the size of the government? What is the appropriate role of progressivity? What are the efficiency effects of recent tax cuts? How important is it to have a transparent budget process? Professor James Repetti introduces the speakers and commentators who address these and other issues in a Symposium on The State of Federal Income Taxation held at Boston College Law School on Friday April 16, 2004

Should We Tax the Gratuitous Transfer of Wealth?: An Introduction

The estate tax was enacted because of concerns about the impact of large concentrations of dynastic wealth on the political process. As discussed in this commentary, which reviews the Symposium articles by Paul Caron, David Joulfaian, and Jennifer Bird-Pollan, recent research by political scientists supports the legitimacy of these concerns. In addition, a significant body of studies suggests that inequality has a long-term negative impact on growth. Paul Caron observes in his article that progressivity in our tax system has been decreasing and that the estate tax was 60% or higher for fifty years (1934–1983), a rate much higher than the current 40%. David Joulfaian notes that the estate tax clearly contributes to the progressivity of our tax system. He finds that estate tax liability of a decedent is on average equivalent to doubling the income tax liability of decedents during the prior ten years. Jennifer Bird-Pollan explores the views on estate tax from a liberal, utilitarian, and libertarian philosophical perspective. This commentary notes some additional aspects of the estate tax that strengthen the utilitarian and liberal arguments in favor of the estate tax

The Appropriate Roles for Equity and Efficiency in a Progressive Individual Income Tax

Increased focus on economic efficiency in formulating tax policy, at the expense of achieving equity, has resulted in decreased rate progressivity in our individual income tax. This decrease has exacerbated inequality. There are several explanations for the intense focus on efficiency and reduced emphasis on equity. Predictions of efficiency gains from low individual income tax rates appear more certain than equity gains from progressive tax rates. Efficiency gains seem measurable, while equity gains appear intangible and unquantifiable. In addition, distributive justice, which underlies and shapes tax equity, exists in many abstract forms, some of which may not require progressive tax rates. This Article argues, however, that the emphasis on efficiency is misplaced. Inequality imposes measurable costs on the health, social well-being, and intergenerational mobility of our citizens, as well as on our democratic process. This is corroborated by significant empirical analysis. In contrast, empirical analysis shows that anticipated efficiency gains from low individual tax rates are speculative. A consensus exists among economists that taxes within the historical range of rates in the United States have little or no impact on labor supply. Moreover, economists cannot agree whether the myriad empirical studies on savings indicate that progressive tax rates decrease, increase, or have no impact on savings in the United States. The clear harms arising from inequality and the uncertain harms arising from progressive tax rates, strongly support always giving equity at least equal weight with efficiency in formulating tax policy. But given the high level of inequality in the United States and the currently low and flat tax rate structure, equity should be given more weight than efficiency at this time. Emphasizing equity in a progressive individual income tax will contribute to the health and economic mobility of our citizens, as well as the stability of our democracy

\u3cem\u3eTaft v. Bowers\u3c/em\u3e: The Foundation for Non-Recognition Provisions in the Income Tax

Taft v. Bowers is a Supreme Court decision that is rarely studied in law schools or discussed by scholars. Yet, it is a case of vast significance. In the Taft decision, the Supreme Court confirmed that Congress may create non-recognition exceptions to the income tax that merely defer the recognition of income, rather than permanently exclude it. If the Taft case had been decided differently, it is likely that the number of non-recognition provisions in the Internal Revenue Code ( Code ) would be significantly reduced

Management Buyouts, Efficient Markets, Fair Value and Soft Information

Leveraged buyouts, particularly by a corporation\u27s management, provide unique opportunities for investors to realize extraordinary profits. In his Article, Professor Repetti examines the potential harm to shareholder interests when management effects a corporate buyout or bailout, and analyzes the effectiveness of current regulatory and common-law protection against that harm Professor Repetti concludes that the existing regulatory and common law schemes do not adequately protect shareholder interests and proposes as a solution that the Securities and Exchange Commission promulgate rules requiring enhanced disclosure in management buyouts

Democracy and Opportunity: A New Paradigm in Tax Equity

Academics and policymakers pay little attention to the interaction of a tax system with the objectives of a just government. For example, in the debate about whether the United States should retain an income tax or adopt a consumption tax, most discussions focus on the relative efficiency and equity of the taxes. Proponents of a consumption tax worry that an income tax is inefficient because it burdens investment income. Advocates of an income tax fear that a consumption tax is not equitable because low-income taxpayers consume a greater percentage of their income than wealthy taxpayers. These concerns date at least as far back as Thomas Hobbes and John Stuart Mill and continue into the twenty-first century. The difficulty in comparing these concerns is that efficiency gains can be quantified, but the benefits of tax equity appear intangible and difficult to measure. Moreover, the many different views of distributive justice obscure equity\u27s importance because of disagreement about equity\u27s underlying rationale. The failure to agree about a rationale for tax equity causes it to appear less well-defined and worthy than tax efficiency. A leading tax academic has described tax policy\u27s failed search for an appropriate rationale for equity as a search for the turtle on which all other turtles rest. This Article suggests that the failure is the result of an improper method of analysis. Tax policy has ignored the necessity of first identifying equity goals appropriate for a just government and then designing a tax system to help achieve those goals. This Article proposes that the principal equity goal underlying a just government is the creation of equal opportunities for all citizens to achieve self-realization-to make the best life for themselves and their families. However, a tax system should not merely be evaluated for its contribution to achieving equal opportunity for self-realization. A tax should be designed to achieve equal opportunity for self- realization as one of its principal goals. Viewing equal opportunity for self-realization as a design issue leads to the identification of another principle that is foundational-the promotion of democracy. Both political philosophy and empirical literature suggest that equal access to the electoral process and participation in the community must exist in order for equal opportunity for self-realization to exist. Thus, the turtle lying at the bottom is equality of opportunity-equality of opportunity to maximize self-realization and equality of opportunity to participate in the political process