Thursday, September 27, 2007
It is also somewhat surprising that the policy literature has devoted much less attention to the time-based aspect of the question of the proper unit for tax distributional analysis than it has devoted to the person-based aspect of the same question. There are, after all, two dimensions to consider in choosing units for purposes of tax (and transfer) distributional analysis – across time (i.e., the choice between using whole-life persons, or person segments of one year or some shorter or longer period), and across persons (i.e., the choice among using individuals, married couples, nuclear families, or perhaps even more extensive family groups). As it happens, the current income tax generally takes a rather expansive approach to defining the taxable unit across persons, by strongly encouraging married couples to file joint returns, and by taxing most unearned income of minor children at their parents’ marginal tax rates (pursuant to the so-called “kiddie tax). The policy literature on the merits and demerits of aggregating marital or family income is voluminous. By contrast, the literature on the appropriate time segment for distributing tax burdens is quite thin. In addition to Vickrey’s expositions of his lifetime averaging proposal, there have been a few recent articles evaluating his proposal from various perspectives. There are also two significant older articles, not focused on Vickrey’s proposal, but considering the merits of income averaging in more general terms. Finally there are two articles proposing replacing the single year tax accounting period with a two year period–for all taxpayers in the case of one article, and for low-income wage earners with fluctuating incomes in the case of the other article. There is not much more. In particular, there is no sustained discussion in the tax policy literature of whether the continuity of personal identity over time is sufficient to justify the usual assumption that entire lifetimes are the ideal units for purposes of tax distributional analysis. This article attempts to fill that gap.