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Faculty Scholarship

How to Achieve Fairer Taxation

Professor James Repetti ’80 offers solutions.

Illustration by Kagan McLeod
Pocket Résumé
James Repetti: Degrees BA Harvard, 1975; JD and MBA, Boston College, 1980. Associate, Ropes & Gray, 1981-1986, practicing tax and business law. Teaching: Faculty, Boston College Law School, 1986-date. Associations: Consultant to staff, US Senate Budget Committee, 2015-2016. Consultant to tax staff of various US senators, 1993-2019. Media: Author or co-author of some twenty books, as well as articles in NYU Law Review, Vanderbilt Law Review, Notre Dame Law Review, and numerous other professional journals.

The Idea: Since the 1980s, Congress has repeatedly cut income taxes in the name of economic efficiency. Contrary to expectations, however, the tax cuts can’t be shown to have improved the country’s economic performance, says James Repetti, William J. Kenealy, SJ, Professor of Law. Meanwhile, he says, higher marginal tax rates for top earners, among other changes to taxation, could reduce inequality and improve the lives of most Americans.

The Impact: In late 2020, Repetti attended a meeting of academic experts and officials from the Biden transition team. At the meeting and elsewhere, he has argued for reducing economic inequality through measures like increasing income tax rates for people in the top brackets; reducing exemptions to the estate tax; ending preferential treatment for capital gains and dividend income; reducing payroll taxes on people in lower income brackets; and repealing the 20 percent income tax deduction for real estate concerns, which, Repetti says, was enacted under President Donald Trump. 

Tax law can be made more equitable, Repetti says, without harming the economy, an argument he makes at length in a 2020 article published in Florida Tax Review. In it, he cites studies and marshals data from a range of disciplines—economics, sociology, political science, even public health—to turn conventional wisdom on its head, arguing that “empirical analysis shows that anticipated efficiency gains from low individual tax rates are speculative” while inequality, caused in part by lower taxes on the rich, “imposes measurable costs” on Americans and American democracy. 

On the efficiency side, he shows that, contrary to claims by their champions, lower tax rates have failed to increase the labor supply and likely have no influence on personal savings rates. Indeed, as he shows, the US economy has been strongest in periods with higher taxes. When it comes to inequality, he cites high correlations between income inequality and problems ranging from poor health and bad education to social immobility and government indifference to all but the wealthiest citizens.

Contrary to expectations, tax cuts can’t be shown to have improved the country’s economic performance.

President Biden has responded to calls by Repetti and like-minded advocates by proposing higher tax rates for the wealthiest Americans, among other progressive income tax provisions, but he’s been blocked by congressional Republicans, Repetti says. He applauds one tax change that Biden and Congress did push over the finish line last year, as part of the Inflation Reduction Act. The 2022 law sets a 1 percent tax on corporate stock buybacks. The buybacks, says Repetti, are economically unproductive, and taxing them will bring in nearly $10 billion a year to fund programs aimed at helping low- and middle-income Americans. 

Another change he has suggested, including in discussions with Treasury Department personnel, can likely be made administratively, without action by Congress, as he argues in an article forthcoming in Wisconsin Law Review. In the article, Repetti proposes getting rid of a tax loophole that treats overseas subsidiaries of US businesses as manufacturers—and thereby qualifies them for preferential tax treatment—even if they manufacture nothing at all but merely contract with another foreign company to do their manufacturing for them. With that provision in place, he says, “Why would you ever manufacture anything in the United States?” But if the provision were removed, wouldn’t the foreign subsidiaries just set up their own manufacturing plants and thus continue to qualify for favorable tax treatment? Not likely, says Repetti, who points to the close association between low-cost manufacturing and countries such as China. “I have to build a factory in a totalitarian state?” he says, channeling the overseas business owner. “I’m going to think twice about that kind of risk.”

In an early review, posted on the TaxProf Blog, David Elkins, a visiting professor at New York University School of Law, calls Repetti’s article, “important and well-written” and predicts that it “will benefit tax scholars and policymakers.” The article, adds Norman Richter, a lecturer at Boston University Law School and former tax counsel for the US Senate Finance Committee, “skillfully unpacks the complex rules governing the tax treatment of US multinationals and brings into focus the underappreciated influence those rules exert to drive US manufacturing jobs overseas, to the detriment of our social stability and national security.”

While admitting that tax treatment of earnings by overseas subsidiaries of US corporations is a “very technical area,” Repetti calls his research on the topic the most important work of his scholarly career. After all, he says, the tax law provision he’s targeting has helped usher in “massive unemployment for US factory workers and changed the fabric of our country. You’ve got people making $15 an hour working at Walmart who used to make $40 an hour working on an assembly line.” Or, to put it briefly, one arcane provision of the Internal Revenue Code has made for many unhappy Americans.