The Vision Project

The Taxation Corrective

Editor’s Note: In this BC Law Magazine “Vision Project” series, we are engaged in a lengthy discussion with Boston College Law School faculty about where the Covid-19 pandemic and its attendant medical, economic, racial, and political consequences may lead us. As New York Times op-ed columnist Timothy Egan so eloquently put it recently, “Every crisis opens a course to the unknown. In an eye-blink, the impossible becomes possible. History in a sprint can mean a dark, lasting turn for the worse, or a new day of enlightened public policy.” There are warnings and worries in these professors’ views, but there are also farsighted ideas and strategies for crafting a better future, a more just society, and a world in which each and every human being is equal under the law.


PROFESSOR JAMES R. REPETTI

The inaugural holder of the William J. Kenealy, S.J. Chair, Professor Repetti is co-author of the texts Partnership Income Taxation, Introduction to United States International Taxation, Federal Wealth Transfer Taxation, Problems in Federal Wealth Transfer Taxation, and Tax Aspects of Organizing and Operating a Business. He is also a contributing author to the treatises, Comparative Income Taxation: A Structural Analysis and to The International Guide to Partnerships. He is also the author of numerous influential articles on taxation.


Your recent scholarship has shown that the focus on efficiency rather than equity in formulating tax policy has contributed to a growing wealth gap. How might that insight be useful as our nation struggles to right itself from the onslaughts of Covid-19 and racial upheaval?America has, indeed, entered a new era of economic uncertainty fueled by the pandemic and exposure of systemic racial injustice, so it is time to reexamine our tax structures and policies for possible solutions.

A bit of history may be useful in that investigation.

In the early 1900’s, Teddy Roosevelt lobbied for a constitutional amendment that would permit a tax on individual incomes. He favored a tax that would impose progressively higher rates on higher levels of income. Roosevelt supported a progressive income tax, which imposes such increasingly higher rates, because he was concerned that rising inequality threatened capitalism.

For most of the period after the adoption of the 16th Amendment, which authorized an income tax, the US had highly progressive rates on income with the maximum rate sometimes as high as 94 percent during periods of war and 91 percent during peacetime. In the past thirty years, however, our maximum rate has decreased (currently 37 percent), primarily because of concerns about the impact of high individual tax rates on economic activity.

That emphasis on economic 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, anticipated economic 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.

Read all faculty Vision Project interviews here.

Comments are closed.