TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, March 17, 2017

Weekly SSRN Tax Article Review And Roundup

This week, David Gamage (Indiana) reviews a new draft article by John R. Brooks (Georgetown), The Definitions of Income, 71 Tax L. Rev. __ (forthcoming).

Gamage (2017)The question of “what is income” is often the starting point for law school tax courses. This question has also been the subject of a number of great debates in tax legal scholarship over the past century. Assessing some of these debates, Brooks argues that “income is not a pure, external concept, but actually a constructed concept that necessarily embodies policy, and therefore political, goals.” As Brooks explains, this conclusion echoes and builds on the arguments of prior giants of tax legal scholarship—especially Boris Bittker.

Brooks’s article makes valuable contributions in summarizing and assessing the intellectual history of debates over the “what is income” question.

Perhaps even more valuable, his article evaluates “12 different income definitions used by the federal government for different purposes.” In doing so, his article “illustrates that there is wide range of income concepts actively in use, but that the measure of income for tax purposes has a prominent and growing role.” Indeed, one of the most interesting contributions of his article is his showing how the implicit idea that “income” is pure concept, and that the tax law is good at measuring it, leads to what he calls the hegemony of adjusted gross income (AGI)—that AGI is taking an increasingly large role in non-tax income-measurement tasks, without enough thought into the fact that AGI is constructed for tax policy purposes.

Turning back to implications for tax policy, Brooks’s analysis raises a number of questions and suggests several important avenues for further inquiry and research. For one, what role should concepts like “economic income” play in a tax system? I mostly agree with Brooks that any such concept must be constructed and is not pure and external. But this conclusion does not imply to me that such concepts lack utility.

The rules for calculating taxable income and similar measurements must necessarily embody numerous compromises. We devise rules for calculating taxable income in order to assess distributional capacity. But we balance this goal against concerns about efficiency and administrability. Then, the political process further muddies the rules for calculating taxable income by building in preferences for powerful interest groups, allocative-oriented “tax expenditures”, and the like.

I would thus argue that—in addition to measurements like taxable income—we should also devise calculations for some concept like “economic income” so as to have a more pure, less compromised means of assessing distributional capacity. I agree with Brooks that constructing rules for calculating economic income will also require compromises and the exercise of policy judgments. But so what? With efficiency and administrability being lesser concerns when measuring economic income—because no one is assessed tax based on a measurement of economic income—we can construct a less compromised and more accurate and precise set of rules for assessing distribution for economic income than we can for taxable income.

A strong conclusion from the literatures on the philosophy and sociology of science is that most scientific and expert methodologies involve policy-oriented value judgments. Science is not pure, but rather involves policy and politics. Tax law methodologies are science-like in this respect.  

Assessing distribution is a primary goal of the income tax system and having a measurement concept like “economic income” aids in this goal. So, then, we might ask who should be in control of this measurement concept of economic income? Brooks’s analysis could perhaps be read as implying that Congress should take over this task. Yet I would instead argue for delegating this task to tax legal experts at the Joint Committee of Taxation and in other government offices, as is the current practice.  

Just as in other areas of policy, delegating tasks to communities of professionals has value and can serve to somewhat insulate these tasks from certain more harmful forms of political pressure. There is good reason that we delegate tasks such as the devising the census, labor statistics, climate forecasts, and budget projections. All of these tasks involve constructed concepts that necessarily embody policy, and therefore political, goals—just as Brooks shows is the case for measuring economic income. Nevertheless, our policy communities generally desire for these tasks to be carried out in a less nakedly political fashion than how Congress writes the tax code.  

Brooks’s article thus suggests that we should perhaps seek to answer the “what is income” question in similar fashion to how other bodies of experts answer contested questions related to tasks like devising labor statistics. Scientific and non-scientific-expert methodologies are value-laden, but nevertheless valuable. I believe that tax law methodologies are similarly valuable. But this does not mean that we cannot do better. To this end, Brooks’s article points toward how we might aim for a clearer understanding of the roles played by tax law methodologies, and how we can then strive to perfect those roles. 

Here’s the rest of this week’s SSRN Tax Roundup:

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