Professor Sugin discusses professor Edward D. Kleinbard\u27s latest book, We are Better Than This (2015, Oxford) about the fiscal system and the broader implications of progressive taxation as a policy goal

Sugin, Linda

English

Fordham University School of Law

Fordham Law SchoolFLASH: The Fordham Law Archive of Scholarship and HistoryFaculty Scholarship2014Don't Give Up on TaxesLinda SuginFordham University School of Law, lsugin@law.fordham.eduFollow this and additional works at: http://ir.lawnet.fordham.edu/faculty_scholarshipPart of the Tax Law CommonsThis Book Review is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been acceptedfor inclusion in Faculty Scholarship by an authorized administrator of FLASH: The Fordham Law Archive of Scholarship and History. For moreinformation, please contact tmelnick@law.fordham.edu.Recommended CitationLinda Sugin, Don't Give Up on Taxes, 145 Tax Notes 1373 (2014)Available at: http://ir.lawnet.fordham.edu/faculty_scholarship/511Don’t Give Up on Taxesby Linda SuginReprinted from Tax Notes, December 22, 2014, p. 1373tax notesVolume 145, Number 12 December 22, 2014®(C)TaxAnalysts2014.Allrightsreserved.TaxAnalystsdoesnotclaimcopyrightinanypublicdomainorthirdpartycontent.Don’t Give Up on TaxesBy Linda SuginEdward D. Kleinbard has written an importantbook about the fiscal system, We Are Better Than This(2015, Oxford University Press, New York. 509pages. $24.22.). Now a member of the faculty at theUniversity of Southern California, Kleinbard waspreviously the chief of staff of the Joint Committeeon Taxation and a partner at Cleary, Gottlieb, Steen& Hamilton. He is among the finest tax lawyers ofhis generation, and this book is an important con-tribution to the public debate about taxes andspending.Kleinbard’s central thesis is that progressives aremistaken in focusing on progressive taxation as apolicy goal. He argues that the size of the fiscalsystem should be the central concern and thatprogressives should make greater spending theirprimary fiscal goal. A large fiscal system is moreimportant than progressive taxation because publicspending — by its nature — is progressive. Klein-bard asserts that more government is the best routeto a ‘‘richer, more equal, and happier society.’’1It is refreshing to see that someone who spenttime as the chief of staff of the JCT is fundamentallyoptimistic about government. We are rarely re-minded that government can be a force for good.Nevertheless, it is disappointing that Kleinbard hasbecome a self-described tax apostate.I am troubled by the increasing tendency ofscholars to find solutions to their own problems inother people’s fields. As a tax lawyer, I am dis-tressed when everyone else thinks taxes can solveall our non-revenue problems: Tax carbon.2 Taxguns.3 Tax soda.4 Tax executive pay.5 Tax traffic.6This book suggests that instead of fixing the prob-lems of our tax system, we should change the topicto spending. The grass is always greener in theother guy’s backyard because we can’t see theweeds from where we’re standing.By seizing on spending, the book sets up anunfair comparison. If we are asking whether taxingor spending is the more powerful tool, it’s nocontest — spending wins hands down. It’s not justthat a large fiscal system can support progressivitybetter than a small one, as Kleinbard points out. It’sthat spending is just so much more powerful thantaxing. The only thing taxes can do is change prices.Spending, however, can do anything. All creativeideas for social progress require money. If you pittaxing and spending against each other as alterna-tives in designing public policy, taxes have to lose.Kleinbard is clearly correct that the progressivityof the whole fiscal system is important and that thetax system, standing alone, has no independentdistributional significance.7 But that doesn’t meanthat the taxing side doesn’t matter. It’s not right toignore spending, but it’s also not right to ignore thedesign of the tax system. Just as progressive spend-ing can mitigate regressive taxation, a more pro-gressive tax system can counteract less progressivespending.The decision whether to use taxes or spendingshould depend on which has more real potential forprogressive effects. Kleinbard is optimistic aboutwhat we might achieve on the spending side,particularly in education and healthcare. I suspect1This language is from Kleinbard’s book tour slides.2There is widespread support for a carbon tax amongeconomists. See N. Gregory Mankiw, ‘‘Smart Taxes: An OpenInvitation to Join the Pigou Club,’’ 35 E. Econ. J. 14-23 (2009).3See Lucinda Finley and John Culhane, ‘‘Make Gun Compa-nies Pay Blood Money,’’ The New York Times, June 23, 2013.4San Francisco and Berkeley, California, may be the firstlocalities in America to adopt such a tax. See ‘‘War on Sugar,’’available at http://www.bloomberg.com/politics/articles/2014-10-28/berkeley-and-san-francisco-take-their-shot-at-soda-taxes.5See David Walker, ‘‘Tax Response to the Executive PayProblem,’’ 93 B.U. L. Rev. 325 (2013).6London does this. See https://www.tfl.gov.uk/modes/driving/congestion-charge.7I have said this myself. See Linda Sugin, ‘‘Theories ofDistributive Justice and Limitations on Taxation,’’ 72 Fordham L.Rev. 1991 (2004).Linda Sugin is a professor at Fordham LawSchool.Sugin discusses professor Edward D. Klein-bard’s latest book about the fiscal system and thebroader implications of progressive taxation as apolicy goal.Copyright 2014 Linda Sugin.All rights reserved.tax notes™VIEWPOINTTAX NOTES, December 22, 2014 1373(C) Tax Analysts 2014. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.the reason for that optimism is that he’s a taxperson. Kleinbard’s proposals are so modest andpolitically realistic on the tax side, but so ambitiousand unrealistic on the spending side. He proposesreinstating the Clinton-era rates on all taxpayersand reducing the value of some tax expenditures.8At the same time, he advocates a single-payer planfor health insurance. Many proponents of the Af-fordable Care Act would surely have preferred thatoption but were unable to achieve it. If thereweren’t substantial political economy barriers, wemight already have made better progress on greaterand more progressive spending.The politics of the efforts on both the spendingside and the taxing side run parallel to each other.The same forces that fight progressivity on the taxside also fight it on the spending side. Based solelyon the data presented in the book, more progressivespending seems virtually impossible. Look at all thestates that failed to expand Medicaid ‘‘solely forspite,’’ as Kleinbard says. Grover Norquist wantsevery politician to pledge never to raise taxes,9 buthe also wants to get government small enough todrown it in a bathtub.10Tax expenditures, which most tax scholars dis-dain,11 seem the most promising way to attainanything like progressive spending these days. Ihave been a reluctant champion of tax expendituresprecisely because they seem to be the best way todeliver benefits to the poor.12 The distributionaleffects of tax expenditures are not what they were40 years ago. We use the tax law for the mostsubstantial cash transfer program we have. Manyinfluential tax reform proposals — like the presi-dent’s fiscal commission’s — lump togethercorporate-welfare-type tax expenditures with theearned income tax credit and argue that we shouldget rid of all of them.13 Given how stingy Congresshas been recently, I’m not hopeful that we can getmore progressive direct spending. I’m more hopefulabout extending the enhanced earned income creditor the refundable piece of the education credits.14The only politically possible way to have big gov-ernment these days is by making it look like taxesare being cut. It is either inconsistent or politicallynaive to argue for both bigger government andfewer tax expenditures.Kleinbard recognizes that there are fundamentalmoral and philosophical questions that drive taxpolicy and that those questions should be explicit.Judging from his proposals, it seems Kleinbard doesnot really want that much progressivity in the fiscalsystem. The ideal contemplated in the book is afiscal system financed by the huge middle class butthat mostly serves the middle class also. There’snothing wrong with wanting only a modest level ofprogressivity in the fiscal system. There’s no prin-ciple that dictates the right level of progressivity; itis a moral choice. It is on that moral choice that Idisagree with Kleinbard the most because even ifwe spend more and better, I still believe taxesmatter.Taxation is the most widespread and intrusiveinterface between individuals and the government.It involves a coercive exercise of government power.It is appropriately a test of whether we governourselves fairly. If the government operates the taxsystem unjustly, there is no direct spending that cancure those injustices. Every institution of govern-ment must operate fairly.What does it mean to govern ourselves fairly? Ingeneral, all government institutions must respectindividuals as autonomous and equal. In taxation,respecting individuals as autonomous and equalrequires allowing individuals to exert dominionover what they deserve. We cannot construct atheory of fair taxation without talking about whatwe each deserve — as our share of the socialproduct and as our burden of society’s costs. Whatare individuals entitled to own exclusively, andwhat is justly allocated to communal resources? Themost fundamental tax fairness question asks whatshould be treated as private property and whatshould be treated as social product. There is nopre-social division between private ownership andpublic entitlement. Pretax income is a normativelyempty concept because it assumes people haveentitlements to amounts they do not morally de-serve.Fair shares also depend on context. Governmentspending is part of that context, but the fiscalsystem is not enough. Other factors are also rel-evant to the question of fair shares. How marketsallocate returns is important. We live in a society in8Kleinbard’s business tax plan, the business enterprise in-come tax (BEIT), is admittedly more radical.9Americans for Tax Reform, ‘‘Federal Taxpayer ProtectionPledge Questions and Answers,’’ available at http://www.atr.org/federal-taxpayer-protection-questions-answers-a6204.10See Paul Krugman, ‘‘The Tax-Cut Con,’’ The New York TimesMagazine, Sept. 14, 2003, at 57.11Including Kleinbard in this book and elsewhere. See Klein-bard, ‘‘The Congress Within the Congress: How Tax Expendi-tures Distort Our Budget and Our Political Processes,’’ 36 OhioN.U. L. Rev. 1, 3 (2010).12Sugin, ‘‘Tax Expenditures, Reform, and Distributive Jus-tice,’’ 3 Col. J. Tax L. 1 (2012).13National Commission on Fiscal Responsibility and Reform,‘‘The Moment of Truth,’’ at 29 (2010).14Both of these enhanced refundable credits are scheduled toexpire at the end of 2017. See sections 32(b)(3) and 25A(i).COMMENTARY / VIEWPOINT1374 TAX NOTES, December 22, 2014(C) Tax Analysts 2014. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.which the returns to capital outstrip the returns tolabor, and the top 1 percent is doing much betterthan everyone else.15 Markets are part of the socialstructure that government institutions must ac-count for in measuring fair shares. On the otherside, the contributions individuals make to thesocial fabric are important, too. An individual’sshare should reflect whether her life is devoted toimproving prospects for others. Fair shares need toaccount for what we contribute to society, as well aswhat we take from it.Once we account for social institutions, we alldeserve very little of what we have. A huge part ofeveryone’s income and wealth is attributable tofactors for which we are not responsible. Moreover,the share of income and wealth that comes frombeing in society increases rapidly as income andwealth go up. The benefits to high-income indi-viduals provided by the social structure and thegovernment extend beyond anything that looks likea transfer or even a public good. The basic infra-structure of society benefits the wealthy comparedto the poor. That infrastructure includes the opera-tion of markets and the monetary system, as well aseverything else that makes America an attractiveplace to live, work, and invest. Social forces andsocial cooperation produce many tangible and in-tangible things that contribute to income andwealth. The advantage of being part of society isenormous for people who do well.Let me be clear. I’m not in favor of a benefits tax,which is an incoherent idea. We all enjoy infinitebenefits from social cooperation, since the baselinefor comparison should be the Hobbesian world inwhich life is brutish and short. Instead, my point isthat social investment has implications for taxationbecause it should make us think about what peoplereally deserve as their fair shares of private owner-ship, and as a corollary, what are fair shares tocontribute to communal purposes. Substantiallymore tax progressivity is necessary to appropriatelyallocate returns to private property, on the onehand, and returns to social cooperation, on theother. Given the operation of institutions in oursociety, more progressive taxes are necessary tomake the system — as a whole — one of fair shares.On this question of moral fairness, Kleinbardfocuses primarily on the role luck plays in deter-mining outcomes even when potential is the same.Although he mentions John Rawls, Kleinbard’sphilosophical lodestar seems to be Ronald Dwor-kin, whose ‘‘Equality of Resources’’16 largely paral-lels the philosophical framework of Kleinbard. Inthat essay, Dworkin explicitly developed the casefor a progressive income tax on an insurance model,and his defining principle on moral fairness sepa-rated luck from ambition. Unlike some other schol-ars, I don’t think government, in general, or the taxsystem, in particular, should have as its purposecompensating people who have suffered bad luck.While Rawls didn’t say much about taxation inparticular, he did believe that the principles ofjustice must ‘‘specify the fair terms of social coop-eration’’ and ‘‘regulate the division of benefits aris-ing from social cooperation and allot the burdensnecessary to sustain it.’’17 Kleinbard’s focus on theintegrated fiscal system emulates Rawls in thinkingabout how the interactions of different governmentinstitutions add up. However, I think Rawls’s prin-ciples of justice look at it both more narrowly andmore broadly and that Rawls was more demandingof government institutions. Fairness in taxationdepends on how the tax system fits into the largersocial structure, taking into account institutionsbeyond the fiscal system. It also requires that gov-ernment use the power to tax, whenever possible, tofurther every individual’s equal right to basic liber-ties of citizenship, which was Rawls’s first andprimary principle of justice.18 So I would suggestthat taxation can do more to contribute to a justsociety, and I hope that smart tax people, likeKleinbard, don’t give up on it.15Thomas Piketty, Capital in the Twenty-First Century (2014).16Ronald Dworkin, ‘‘What Is Equality? Part II: Equality ofResources,’’ 10 Philosophy and Public Affairs 283 (1981).17John Rawls, Justice as Fairness 7 (2001).18Rawls, A Theory of Justice 61 (1971).COMMENTARY / VIEWPOINTTAX NOTES, December 22, 2014 1375(C) Tax Analysts 2014. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.

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