Paul L. Caron

Thursday, January 26, 2006

Buchanan Presents Vickrey's Cumulative Income Averaging and Tax Reform Today at NYU

Buchanan_1 Nyu_15Neil H. Buchanan (Rutgers-Newark) presents Should We Adopt William Vickrey's Cumulative Income Averaging Tax System?  Progressivity and Simplicity in Tax Reform at NYU today as part of its Colloquium on Tax Policy and Public Finance series conducted by Alan Auerbach and Daniel Shaviro.  Here is the abstract:

This paper focuses on William Vickrey’s proposal to replace our current annual system of tax assessment with a new tax system that bases assessments on lifetime cumulative average income. After reviewing two key arguments in favor of the social goal of progressivity in taxation (a goal that Vickrey shared), I have examined whether adopting Vickrey’s cumulative averaging system would achieve a compelling change in the fairness of the tax system. While the current system undeniably creates a problem of horizontal inequity in that people with similar lifetime incomes can pay different tax rates based on the timing of those incomes, that inequity is ultimately not compelling enough to justify a significant restructuring of the U.S. tax system. The Vickrey system is, moreover, likely to be perceived as quite complicated by the public.

The poor, however, are uniquely burdened by the volatile nature of their income streams. I therefore endorse a plan recently offered by Lily Batchelder to allow low-income people to smooth their incomes in order to avoid a loss of tax benefits. This plan has the distinct advantage of not requiring a complete restructuring of the tax system, providing targeted relief to the neediest Americans through minimal legislative intervention.

At a minimum, though, the goal here has been to give Vickrey’s views on cumulative averaging another hearing. While my assessment has been a negative one, other voices should be heard on these issues. Even as we approach the tenth anniversary of his death, this and other proposals from Professor Vickrey deserve continued study and debate.

The Colloquium will be held in Room 120 of Furman Hall from 4:00 - 6:00 p.m. EST. Although the public is invited to attend, due to heightened security throughout NYU Law, please contact Rosemary Simon so she can provide the Guard's desk with your name.

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