The Trouble with the Income Tax

in Fair Not Flat

Published by University of Chicago Press

Published in print April 2002 | ISBN: 9780226555607
Published online March 2013 | e-ISBN: 9780226555669 | DOI:
The Trouble with the Income Tax

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This chapter argues against the income tax which proceeds on three tracks. One, America does not have, and never has had, a consistent income tax. Two, while in theory one path toward a better tax is to make the income tax and its commitment to taxing savings more consistent, this is not the approach America should, or ever will, take. Three, the inconsistent income tax that one has is particularly bad because it falls heavily on the poor dads of the nation while the rich dads delight in their ability to evade it. There are plenty of reasons for the realization requirement. It is hard to value assets before they are sold. The problem for tax is that the realization requirement is not just an accounting rule. The decision to tax savings led to a series of ill-coordinated decisions that gave rise to the present inconsistent income tax. Under the status quo the rich with property win. Efficiency requires that the government stay out of private decisions. Because of the second tax on savings, all else being equal, people will save less under an income tax than they will under a consumption tax.

Keywords: income tax; consumption tax; efficiency; America; trouble

Chapter.  6970 words. 

Subjects: Political Economy

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