Paul L. Caron
Dean




Wednesday, December 30, 2020

McCaffery: The Death Of The Income Tax

Edward J. McCaffery (USC), The Death of the Income Tax (or, The Rise of America’s Universal Wage Tax), 95 Ind. L.J. 1233 (2020):

Recent proposals from Alexandria Ocasio-Cortez (D NY) to raise the top marginal tax rates under the income tax, and from Senator Elizabeth Warren (D Mass), to add a stand-alone wealth tax to the existing mix of taxes, are promising beginnings. They have burst forth from a veritable desert of progressive tax alternatives in the public political discussion. But both sets of ideas suffer from an allegiance to the status quo; both operate within the existing paradigm of nominally attempting to tax “income” and “wealth” — wealth transfers, in the case of the status quo, wealth itself, in the case of Warren’s proposal. This Article examines that status quo to show that the “income” tax is dead, replaced by a universal wage tax in which payroll taxes add on to a wage/income tax to highly, and inescapably, burden labor while wealth is left off the hook of taxation altogether.

This Article traces the century-long movement of our tax system from an income tax to a wage tax, culminating, to date, in President Trump’s Tax Cuts and Jobs Act of 2017. Liberals and progressives must change the way they think about tax in order to get non-taxpaying billionaires, such as the President and his son-in-law, to pay anything at all.

https://taxprof.typepad.com/taxprof_blog/2020/12/mccaffery-the-death-of-the-income-tax.html

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Comments

MM: "He makes no mention of the OECD in his paper." He doesn't mention OECD by name, but he definitely rebuts that argument. Look carefully, I'm sure you'll find it; just pay closer attention.

Posted by: Gerald Scorse | Jan 4, 2021 5:28:20 AM

Gerald: "You grossly misinterpret McCaffery."

I was responding to you, sir or ma'am, not him. Your appeal to "equality" is just ideological rubbish, as I stated. When you're not scraping the bottom of the bucket of progressive grievances, you're claiming that two white professors disciplined for violating their work contracts was "systemic racism" (laughable). Or that the all of the police officers involved in George Floyd's death were white (false). Or that mass protests against racism in the middle of a deadly pandemic and in violation of lockdown orders was a good thing (irresponsible AND repugnant).

"We're (basically) taxing wage income and allowing income from capital to go untaxed."

No, sorry, that's (completely) false. You can't even qualify "basically" to weasel out of that exaggeration. It's totally detached from reality. Depending on one's taxable income, the long-term capital gains tax rates go from 15% to 20% under current law.

Additionally, I'll quote straight from the IRS, etc.

"Taxpayers earning income above certain thresholds pay an additional 3.8% tax on all investment income. This tax is known as the net investment income tax. Therefore, the top federal tax rate on long-term capital gains is 23.8%."

"State and local taxes often apply to capital gains. In a state whose tax is stated as a percentage of the federal tax liability, the percentage is easy to calculate. Some states structure their taxes differently. In this case, the treatment of long-term and short-term gains does not necessarily correspond to the federal treatment."

"As for the OECD argument, McCaffery has an answer for that too."

He makes no mention of the OECD in his paper. Weasel away, sir or ma'am. It's obvious that YOU have no answer to THAT. The fact remains (unaddressed by people who want to raise taxes) that the U.S. still has the most progressive federal tax system in the entire industrialized world.

Posted by: MM Classic | Jan 3, 2021 4:47:05 PM

MM: You grossly misinterpret McCaffery. He titled the piece The Death of the Income Tax for good reason: we're (basically) taxing wage income and allowing income from capital to go untaxed. As for the OECD argument, McCaffery has an answer for that too. Maybe you should spend some time and find it.

Posted by: Gerald Scorse | Jan 2, 2021 12:34:19 PM

Gerald: "Let's hope that we might finally have a bona fide movement toward equal taxes on income from wealth and income from work--at least more equal than at present."

The U.S. federal tax system is already the most progressive in the entire OECD. That's per the OECD. Making it "more equal" would mean making it less progressive. The top 20% of households already pay all net federal taxes when government transfers are included.

So the claim that raising taxes, any taxes, for any reason, would make the U.S. federal tax system "more equal", is at best a political slogan and at worst complete BS.

You just want to raise taxes. Paying lip service to "equality" is just window dressing.

Posted by: MM Classic | Jan 1, 2021 9:19:46 PM

McCaffery sees some hope for tax equity in "recent proposals from AOC, to raise the top marginal tax rates under the income tax, Senator Warren, to add a stand-alone wealth tax to the existing mix of taxes, and Vice President Biden, to repeal the 'angel of death' rule of IRC Section 1014."

There are other possibilities too. Biden has also proposed ending the tax differential between capital gains income and income from work for all those with incomes over $400,000. Taxing unrealized gains as well as realized gains has long been proposed, notably by Len Burman. Higher estate taxes also have considerable support as the Biden years approach.

Let's hope that the situation isn't quite as grim as McCaffery suggests. Let's hope that we might finally have a bona fide movement toward equal taxes on income from wealth and income from work--at least more equal than at present.

Posted by: Gerald Scorse | Jan 1, 2021 12:37:21 PM

Again, the other side of the equation is totally ignored by the “experts”. Stimulate the economy by providing corporate incentives to provide good paying jobs. Don’t add a larger tax burden to the already overtaxed middle-class. The reason the housing market took so long to turn around was stagnant wage growth. It doesn’t matter how many incentives there are to buy a home or how low the price if your income doesn’t support ownership (if you even have a job). Eliminate or significantly reduce the H1-B visa program so that our children, already over saddled with debt, can get good jobs and in turn add to consumption of goods and services instead of using up resources from tax revenues to survive, and require forgiveness of student debt instead of resources to pay it off. In turn stop funding Universities and Colleges with significant endowments from charging outrageous tuition. I could go on, but you should get the point.

Posted by: DSO | Jan 1, 2021 11:25:19 AM