Thursday, November 15, 2018
Edward Fox (Michigan) presented Ironing Out the Tax Law (with Jacob Goldin (Stanford)) yesterday at Michigan as part of its Tax Policy Workshop Series hosted by Reuven Avi-Yonah:
The law is full of sharp lines, where small changes in one’s circumstances lead to significant changes in legal treatment. In many cases, a sharp line can be smoothed out — or “ironed” — by replacing it with a sliding scale. Under a sliding scale, small changes in one’s circumstances lead to small changes in legal treatment. In this paper, we study the policy choice between sharp lines and sliding scales in the tax law, focusing particularly on concerns related to efficiency, complexity, and administration. Sliding scales are common for tax provisions that depend on income, but relatively uncommon for provisions that depend on non-income factors.
We argue that sliding scales merit more consideration than they typically receive, and set out several principles for choosing between the two designs.