Wednesday, March 26, 2014
David Gamage (UC-Berkeley) presents A Framework for Analyzing the Optimal Choice of Tax Instruments, 68 Tax L. Rev. ___ (2014), at UC-Irvine today as part of its Faculty Colloquium Series
What mix of policy instruments should governments employ to raise revenues or to promote distribution? The dominant answer to this question in the tax theory and public finance literatures is that (with limited exceptions) governments should rely exclusively on a progressive consumption tax. Thus, among other implications, the dominant view is that governments should not tax capital income or wealth, and that legal rules should not be designed to promote distribution.
In contrast, this Article argues that governments should make use of a number of tax and non-tax policy instruments to raise revenues and to promote distribution. Furthermore, this Article argues that governments may have much greater capacity to raise revenues and to promote distribution at lower efficiency costs than is generally recognized. Whereas the existing theoretical literature focuses on a small number of distortionary costs that result from taxation (in particular, on labor-to-leisure and saving-to-spending distortions), this Article analyzes the implications of taxpayers engaging in a diverse variety of tax-gaming responses. To the extent that taxpayers respond to different tax instruments through different forms of tax gaming, this Article demonstrates that governments can raise revenues and promote distribution more efficiently by employing a variety of different policy instruments.
Based on these insights, this Article develops a sufficient-statistics framework for analyzing optimal-choice-of-tax-instruments questions. Applying that framework, this Article argues that at least some legal rules should be designed to promote distribution. This Article further shows how to roughly quantify the optimal extent to which each such legal rule should be used to promote distribution.