TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Tuesday, March 21, 2017

Hemel Presents The Federalist Safeguards of Progressive Taxation Today At Georgetown

HemelDaniel Hemel (Chicago) presents The Federalist Safeguards of Progressive Taxation at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by John Brooks and Itai Grinberg.

This essay considers the distributional consequences of the Supreme Court’s federalism jurisprudence over the past quarter century, focusing specifically on the anticommandeering, anti-coercion, and state sovereign immunity doctrines. The first of these doctrines prevents Congress from compelling the states to administer federal programs; the second prevents Congress from achieving the same result through offers that for practical purposes the states cannot refuse; the third prohibits Congress from abrogating state sovereign immunity outside a limited class of cases. These doctrines vest the states with valuable entitlements and allow the states to sell those entitlements back to Congress for a price. In this respect, the doctrines have an intergovernmental distributional effect, shifting wealth from the federal government to the states.

The distributional consequences of the anti-commandeering, anti-coercion, and state sovereign immunity doctrines are not purely intergovernmental, however. The doctrines also have potential implications for the distribution of wealth across individuals and households. By forcing Congress to bear a larger share of the costs of federal programs, and by shifting some of the costs of liability-imposing statutes from the states to Congress, these doctrines allow the states to raise less revenue and compel Congress to raise more. For a number of historical as well as structural reasons, the federal tax system is dramatically more progressive than even the most progressive state tax systems, and so the reallocation of fiscal responsibility resulting from these federalism doctrines causes more revenue-raising to occur via the more progressive system. The likely net effect is a shift in wealth from higher-income households (who bear a larger share of the federal tax burden) to lower- and middle-income households (who would have borne a larger share of the burden of state taxes).

This conclusion comes with a number of caveats. The distributional consequences of the Supreme Court’s federalism doctrines may be moderated—or magnified—by differences in federal and state spending priorities. Moreover, the doctrines may affect the size of government as well as the allocation of fiscal responsibility across levels of government (though the net effect on government size is ambiguous). And the doctrines may have distributional consequences that are not only interpersonal, but also intergenerational. What seems clear from the analysis in this essay is that federalism doctrines affect the distribution of income and wealth in subtle and sometimes unexpected ways, and that a comprehensive understanding of wealth inequality in the United States requires careful attention to key features of our fiscal constitution.

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