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

Repetti, James R

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

Repetti, James R.

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Boston College Law SchoolDigital Commons @ Boston College Law SchoolBoston College Law School Faculty Papers3-9-2005Introduction to the State of Federal IncomeTaxation: Rates, Progressivity, and BudgetProcessesJames R. RepettiBoston College Law School, repetti@bc.eduFollow this and additional works at: http://lawdigitalcommons.bc.edu/lsfpPart of the Taxation-Federal Income CommonsThis Article is brought to you for free and open access by Digital Commons @ Boston College Law School. It has been accepted for inclusion in BostonCollege Law School Faculty Papers by an authorized administrator of Digital Commons @ Boston College Law School. For more information, pleasecontact nick.szydlowski@bc.edu.Recommended CitationJames R. Repetti. "Introduction to the State of Federal Income Taxation: Rates, Progressivity, and Budget Processes." Boston CollegeLaw Review 45, (2005): 989-992.989 INTRODUCTION TO THE STATE OF FEDERAL INCOME TAXATION: RATES, PROGRESSIVITY, AND BUDGET PROCESSES James R. Repetti*  Other than the power to declare war, a democracy’s power to as-sess taxes affects the largest percentage of its citizens in almost every aspect of their lives. Given the major tax legislation in the past four years, it is appropriate that a Catholic Jesuit Law School, dedicated to seeking justice, should sponsor a symposium exploring the state of federal income taxation.  We are pleased to present some of our nation’s leading tax ex-perts to explore issues pertaining to a just income tax system. Profes-sor Martin J. McMahon, Jr. begins this Symposium by examining whether the current income tax exacerbates the inequality between rich and poor in The Matthew Effect and Federal Taxation.1 This title is based upon a passage in Matthew 25:29 that essentially states that the rich get richer while the poor get poorer. In his article, which the prominent journal, Tax Notes, has called a “tour de force,”2 Professor McMahon presents compelling evidence that the rich have indeed become richer, while the poor have become poorer, and that the fed-eral income tax is contributing to the problem. In her Commentary, Professor Deborah H. Schenk takes issue, however, with Professor McMahon’s suggestion that increasing tax rates on the super-rich will help to remedy the problem.3 She suggests that it is not possible to decrease income inequality without increasing tax rates on a broad range of taxpayers and that this may be politically unacceptable. Pro-                                                                                                                      * Professor of Law, Boston College Law School. I thank Kathy and Robert Paulus for their generous ªnancial support for this Symposium. I also thank Rosalind Kaplan and John Gordon for their signiªcant administrative talents in organizing this Symposium. Lastly, I thank the editorial board of the Boston College Law Review for their outstanding editorial work. 1 Martin J. McMahon, Jr., The Matthew Effect and Federal Taxation, 45 B.C. L. Rev. 993 (2004). 2 Joseph P. Thorndike, Neither Fair nor Adequate: The Unhappy State of Federal Taxation, 105 Tax Notes 309, 310 (2004). 3 Deborah H. Schenk, The Luke Effect and Federal Taxation: A Commentary on McMahon’s The Matthew Effect and Federal Taxation, 45 B.C. L. Rev. 1129 (2004). 990 Boston College Law Review [Vol. 45:989 fessor Richard L. Schmalbeck also points out in his Commentary that increasing the top marginal tax rates on the super-rich may adversely affect economic output.4  Next, Doctors William G. Gale and Peter R. Orzsag, both of the Brookings Institution, analyze the effect of tax cuts that occurred dur-ing the period 2001 through 2004 in Tax Policy in the Bush Administra-tion, 2001–2004.5 They show that the tax decreases make high-income households better off at the expense of all other households when the impact of ªnancing the tax cuts is taken into account. Speciªcally, most families with children and most small businesses will be worse off then they would have been without the tax decreases. Commenting on the article by Doctors Gale and Orzsag, Professor Paul R. McDan-iel considers alternatives for ªnancing the deªcit created by the tax cuts.6 He compares the option of decreasing Social Security beneªts by forty-eight percent in 2014 to decreasing all tax expenditures by forty percent. In her Commentary, Professor Linda Sugin suggests that Congress should adopt a “pay as you go” budget rule to impose ªscal discipline that also contains a bias against tax cuts that increase income inequality.7 She further suggests that present value concepts should be used in budget analysis to clearly present the impact of pro-visions that increase revenues in the short run at the expense of fu-ture revenues.  Professor Daniel N. Shaviro then attempts to identify the ration-ale for recent tax cuts in Reckless Disregard: The Bush Administrations Policy of Cutting Taxes in the Face of an Enormous Fiscal Gap.8 He suggests that the tax cuts may be seen as a way of decreasing the future size of government without paying a current political price. He argues, how-ever, that this policy is doomed to failure because it in fact increases the role that government plays in wealth redistribution. He states that the tax cuts represent a large wealth transfer by the government from                                                                                                                       4 Richard L. Schmalbeck, The Death of the Efªciency-Equity Tradeoff?: A Commentary on McMahon’s The Matthew Effect and Federal Taxation, 45 B.C. L. Rev. 1143 (2004). 5 William G. Gale & Peter R. Orszag, An Economic Assessment of Tax Policy in the Bush Administration, 2001–2004, 45 B.C. L. Rev. 1157 (2004). 6 Paul R. McDaniel, Assessing the Bush Administration’s Tax Agenda: A Commentary on Gale and Orszag’s An Economic Assessment of Tax Policy in the Bush Administration, 2001–2004, 45 B.C. L. Rev. 1253 (2004). 7 Linda Sugin, Sustaining Progressivity in the Budget Process: A Commentary on Gale and Or-szag’s An Economic Assessment of Tax Policy in the Bush Administration, 2001–2004, 45 B.C. L. Rev. 1259 (2004). 8 Daniel N. Shaviro, Reckless Disregard: The Bush Administration’s Policy of Cutting Taxes in the Face of an Enormous Fiscal Gap, 45 B.C. L. Rev. 1285 (2004). 2004] Introduction 991 future generations to the current generation, because future genera-tions will have to pay the deªcit. In his Commentary on Professor Shaviro’s article, Professor Lawrence Lokken expresses concern about the fact that 40 percent of our government’s debt is held by foreign investors.9 He observes that a sudden loss of conªdence by foreign investors would be traumatic for the U.S. economy and for world capi-tal markets. Professor David Ira Walker argues in his Commentary that political-economy theory suggests that it is unrealistic to expect ªscal austerity in the form of tax increases and spending cuts to ad-dress the looming deªcit problem.10 Focusing on Social Security and Medicare, he suggests that Medicare is a signiªcantly greater problem than Social Security and that the focus should be on controlling the costs of medical care.  In the last principal article, Progressive Taxation and Happiness, Pro-fessor Thomas D. Grifªth proposes a new method for identifying wel-fare gains that arise from a progressive tax-rate structure.11 He suggests that recent psychological studies of what causes people to be happy support the view that income has declining marginal utility and, there-fore, that redistribution of income from the rich to the poor can in-crease total welfare in a society. He further observes that the studies on happiness suggest that welfare gains arising from tax cuts for the “middle class” are likely to be less than gains that would be achieved from using the same tax revenue to provide basic services for the poor or collective goods, such as environmental clean-up or better police and ªre protection. Given the support that these studies lend to a pro-gressive rate structure, Professor Marjorie’s E. Kornhauser explores in her Commentary why opposition to progressivity seems to have in-creased in recent years.12 She attributes the increased opposition to misleading rhetoric and suggests that efforts be undertaken to inform the public about the relationship of a progressive tax rate structure to basic American ideals. Lastly, Professor Diane M. Ring, in her Com-mentary, cautions that using happiness as a measure for utility can pre-sent signiªcant measurement problems.13 Nevertheless, she suggests                                                                                                                       9 Lawrence Lokken, A Tax Lawyer’s Observations on Scary Numbers, Politics, and Irresponsi-bility: A Commentary on Shaviro’s Reckless Disregard, 45 B.C. L. Rev. 1335 (2004). 10 David Ira Walker, The Social Insurance Crisis and the Problem of Collective Saving: A Com-mentary on Shaviro’s Reckless Disregard, 45 B.C. L. Rev. 1347 (2004). 11 Thomas D. Grifªth, Progressive Taxation and Happiness, 45 B.C. L. Rev. 1363 (2004). 12 Marjorie E. Kornhauser, Educating Ourselves Towards a Progressive (and Happier) Tax: A Commentary on Grifªth’s Progressive Taxation and Happiness, 45 B.C. L. Rev. 1399 (2004). 13 Diane M. Ring, Why Happiness?: A Commentary on Grifªth’s Progressive Taxation and Happiness, 45 B.C. L. Rev. 1413 (2004). 992 Boston College Law Review [Vol. 45:989 that the studies can help formulate policy, and she poses the provoca-tive question whether a non-progressive tax system might create less hostility for a redistributive public-spending program.  These articles contribute signiªcantly to the debate about the appropriate future direction of U.S. tax policy. Recognizing the prob-lems that lie ahead, they advance our knowledge and open new and promising avenues for solutions. 

Boston College Law ReviewVolume 45Issue 5 The State Of Federal Income TaxationSymposium: Rates, Progressivity, And Budget ProcessesArticle 19-1-2004Introduction to the State of Federal IncomeTaxation: Rates, Progressivity, and BudgetProcessesJames R. RepettiFollow this and additional works at: http://lawdigitalcommons.bc.edu/bclrPart of the Taxation-Federal CommonsThis Symposium is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has beenaccepted for inclusion in Boston College Law Review by an authorized administrator of Digital Commons @ Boston College Law School. For moreinformation, please contact nick.szydlowski@bc.edu.Recommended CitationJames R. Repetti, Introduction to the State of Federal Income Taxation: Rates, Progressivity, and BudgetProcesses, 45 B.C.L. Rev. 989 (2004), http://lawdigitalcommons.bc.edu/bclr/vol45/iss5/1INTRODUCTION TO THE STATE OFFEDERAL INCOME TAXATION: RATES,PROGRESSIVITY, AND BUDGETPROCESSESJAMES R. REPETTI*Other than the power to declare war, a democracy's power to as-sess taxes affects the largest percentage of its citizens in almost everyaspect of their lives, Given the major tax legislation in the past fouryears, it is appropriate that a Catholic Jesuit Law School, dedicated toseeking justice, should sponsor a symposium exploring the state offederal income taxation.We are pleased to present some of our nation's leading tax ex-perts to explore issues pertaining to a just income tax system. Profes-sor Martin J. McMahon, Jr. begins this Symposium by examiningwhether the current income tax exacerbates the inequality betweenrich and poor in The Matthew Effect and Federal Taxation.' This title isbased upon a passage in Matthew 25:29 that essentially states that therich get richer while the poor get poorer. In his article, which theprominent journal, Tax Notes, has called a "tour de force,"2 ProfessorMcMahon presents compelling evidence that the rich haVe indeedbecome richer, while the poor have become poorer, and that the fed-eral income tax is contributing to the problem. In her Commentary,Professor Deborah H. Schenk takes issue, however, with ProfessorMcMahon's suggestion that increasing tax rates on the super-rich willhelp to remedy the problem. 3 She suggests that it is not possible todecrease income inequality without increasing tax rates on a broadrange of taxpayers and that this may be politically unacceptable. Pro-* Professor of Law, Boston College Law School. I thank Kathy and Robert Paulus fortheir generous financial support for this Symposium. 1 also thank Rosalind Kaplan andJohn Gordon for their significant administrative talents in organizing this Symposium.Lastly, I thank the editorial board of the Boston College Law Review for their outstandingeditorial work.Martin J. McMahon, Jr., The Matthew Effect and Federal Taxation, 45 B.C. L. REV. 993(2004).Joseph P. Thorndike, Neither Fair nor Adequate: The Unhappy State of Federal Taxation,105 TAX Noms 309, 310 (2004).Deborah H. Schenk, The Luke Effect and Federal Taxation: A Commentary on McMahon'sThe Matthew Effect and Federal Taxation, 45 B.C. L. REv. 1129 (2004).989990	 Boston College Law Review	 [Vol. 45:989fessor Richard L. Schmalbeck also points out in his Commentary thatincreasing the top marginal tax rates on the super-rich may adverselyaffect economic output.*Next, Doctors William G. Gale and Peter R. Orzsag, both of theBrookings Institution, analyze the effect of tax cuts that occurred dur-ing the period 2001 through 2004 in Tax Policy in the Bush Administra-tion, 2001-2004. 5 They show that the tax decreases make high-incomehouseholds better off at the expense of all other households when theimpact of financing the tax cuts is taken into account. Specifically,most families with children and most small businesses will be worse offthen they would have been without the tax decreases. Commentingon the article by Doctors Gale and Orzsag, Professor Paul R. McDan-iel considers alternatives for financing the deficit created by the taxcuts.6 He compares the option of decreasing Social Security benefitsby forty-eight percent in 2014 to decreasing all tax expenditures byforty percent. In her Commentary, Professor Linda Sttgin suggeststhat Congress should adopt a "pay as you go" budget rule to imposefiscal discipline that also contains a bias against tax cuts that increaseincome inequality.? She further suggests that present value conceptsshould be used in budget analysis to clearly present the impact of pro-visions that increase revenues in the short run at the expense of fu-ture revenues.Professor Daniel N. Shaviro then attempts to identify the ration-ale for recent tax cuts in Reckless Disregard: The Bush AdministrationsPolicy of Cutting Taxes in the Face of an Enormous Fiscal Gap. 8 He suggeststhat the tax cuts may be seen as a way of decreasing the future size ofgovernment without paying a current political price. He argues, how-ever, that this policy is doomed to failure because it in fact increasesthe role that government plays in wealth redistribution. He states thatthe tax cuts represent a large wealth transfer by the government from4 Richard L. Schmalbeck, The Death of the Efficiency-Equity Tradeoff!: A Commentary onMcMahon's The Matthew Effect and Federal Taxation, 45 B.C. L. REV. 1143 (2004).5 William G. Gale & Peter R. Orszag, An Economic Assessment of Tax Policy in the BushAdministration, 2001-2004, 45 B.C. L. REV. 1157 (2004).8 Paul R. McDaniel, Assessing the Bush Administration's Tax Agenda: A Commentary on Galeand Orszals An Economic Assessment of Tax Policy in the Bush Administration, 2001-2004,45 B.C. L. REV. 1253 (2004).7 Linda Sugin, Sustaining Progressivity in the Budget Process: A Commentary on Gale and Or-szag's An Economic Assessment of Tax Policy in the Bush Administration, 2001-2004, 45B.C. L. REV, 1259 (2004).8 Daniel N. Shaviro, Reckless Disregard: The Bush Administration's Policy of Cutting Taxes inthe Face of an Enormous Fiscal Gap, 45 B.C. L. REV. 1285 (2004).2004]	 Introduction	 991future generations to the current generation, because future genera-tions will have to pay the deficit. In his Commentary on ProfessorShaviro's article, Professor Lawrence Lokken expresses concern aboutthe fact that 40 percent of our government's debt is held by foreigninvestors.9 He observes that a sudden loss of confidence by foreigninvestors would be traumatic for the U.S. economy and for world capi-tal markets. Professor David Ira Walker argues in his Commentarythat political-economy theory suggests that it is unrealistic to expectfiscal austerity in the form of tax increases and spending cuts to ad-dress the looming deficit problem.° Focusing on Social Security andMedicare, he suggests that Medicare is a significantly greater problemthan Social Security and that the focus should be on controlling thecosts of medical care.In the last principal article, Progressive Taxation and Happiness, Pro-fessor Thomas D. Griffith proposes a new method for identifying wel-fare gains that arise from a progressive tax-rate structure." He suggeststhat recent psychological studies of what causes people to be happysupport the view that income has declining marginal utility and, there-fore, that redistribution of income from the rich to the poor can in-crease total welfare in a society, He further observes that the studies onhappiness suggest that welfare gains arising from tax cuts for the"middle class" are likely to be less than gains that would be achievedfrom using the same tax revenue to provide basic services for the pooror collective goods, such as environmental clean-up or better policeand fire protection. Given the support that these studies lend to a pro-gressive rate structure, Professor Marjorie's E. Kornhauser explores inher Commentary why opposition to progressivity seems to have in-creased in recent years.° She attributes the increased opposition tomisleading rhetoric and suggests that efforts be undertaken to informthe public about the relationship of a progressive tax rate structure tobasic American ideals. Lastly, Professor Diane M. Ring, in her Com-mentary, cautions that using happiness as a measure for utility can pre-sent significant measurement problems. 13 Nevertheless, she suggests9 Lawrence Lokken, A Tax Lawyer's Observations on Scary Numbers, Politics, and Irresponsi-bility: A Commentary on Shaviro's Reckless Disregard, 45 B.C. L. REV. 1335 (2004).lo David Ira Walker, The Social Insurance Crisis and the Problem of Collective Saving: A Com-mentary on Shaviro's Reckless Disregard, 45 B.C. L. REV. 1347 (2004)." Thomas D. Griffith, Progressive Taxation and Happiness, 45 B.C. L. REV. 1363 (2004)." Marjorie E. Kornhauser, Educating Ourselves Towards a Progsrssive (and Happier) Tax: ACommentary on Griffith's Progressive Mutation and Happiness, 45 B.C. L. REV. 1399 (2004).13 Diane M. Ring, Why Happiness?: A Commentary on Gtiffith's Progressive Mutation andHappiness, 45 B.C. L. REV. 1413 (2004).992	 Boston College Law Review 	 [Vol. 45:989that the studies can help formulate policy, and she poses the provoca-tive question whether a non-progressive tax system might create lesshostility for a redistributive public-spending program.These articles contribute significantly to the debate about theappropriate future direction of U.S. tax policy. Recognizing the prob-lems that lie ahead, they advance our knowledge and open new andpromising avenues for solutions.

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

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