Weekly SSRN Tax Article Review And Roundup: Speck Reviews Repetti's Equity And Efficiency In A Progressive Income Tax

This week, Sloan Speck (Colorado; Google Scholar) reviews a new work by James R. Repetti (Boston College; Google Scholar), The Appropriate Roles for Equity and Efficiency in a Progressive Individual Income Tax, 23 Fla. Tax Rev. 522 (2020).

In The Appropriate Roles for Equity and Efficiency in a Progressive Income Tax, James Repetti offers a magisterial reappraisal of the relationship between equity and efficiency in U.S. tax policy. Repetti connects the decline in statutory income tax rates since the 1950s to a rising “focus on efficiency” at the expense of distributional concerns. For Repetti, this shift occurred, in part, because policymakers felt that efficiency offered “certainty” and “quantifiable” gains, while equity considerations seemed “intangible and unmeasurable.” These intuitions are illusory, however, as Repetti demonstrates through a comprehensive review of empirical literature in economics and other social sciences, including connections to Repetti’s prior work on taxation and democracy. Repetti joins other contemporary voices in advocating for a revival of traditional equity norms in policy debates—and perhaps even for a new preeminence of equality-oriented equity in the near term.

Repetti’s analysis is a clear repudiation of a longstanding mantra of tax reform: broaden the base, and lower rates. Since at least 1986, this paradigm has captured the hearts and minds of policymakers on both sides of the aisle. Repetti reveals that this conceptualization of reform is not just a mistake. It’s a trap, a simplistic expression of armchair economics that has marginalized equity considerations for decades. Indeed, Repetti convincingly demonstrates that deference to these intuitions about efficiency only further entrenches income and wealth inequality—and exacerbates the personal and social costs of this inequality. The way out is a fundamental reassessment of the role and effects of significantly progressive rates.

This reassessment—and Repetti’s conclusions—may find some common ground with efficiency-oriented empiricists. Take, for example, the emerging consensus that taxes have limited labor supply effects. Or the substantial evidence that taxes have little effect on savings. Under these conditions, efficiency considerations should not exert downward pressure on tax rates—and such considerations may justify higher rates to the extent that the relevant behaviors are inelastic. But Repetti asks policymakers to do more than just take notice of trends in social science scholarship that recognize the burdens of inequality and complicate taxation’s behavioral costs. Instead, Repetti urges policymakers to embrace empirical uncertainties and leverage the resulting discomfort to revisit equity as a touchstone. The conversations will be harder, but, as Repetti implies, more meaningful.

From this perspective, the problem may extend beyond the primacy of the efficiency criterion. The (social) scientific method generates a certain turbulence, especially when the results are quantified, that may mesh poorly with particular policy issues. One possible solution—proposed by many, including Michael Graetz in the mid-1990s—is a greater reliance (or co-reliance) on narrative, as opposed to numbers. Policymakers should hear how proposals play out at the individual level, as well as in the aggregate. Such narratives allow for more exploration of race, class, and gender, in a way that may feel more concrete than charts and figures. Furthermore, this approach is fully consonant with a renewed emphasis on equity norms. As Repetti notes, these norms require a priori content, about which people may disagree. Narrative presentations may highlight points of consensus or disagreement that allow equity to be operationalized.

Finally, Repetti’s framework could be extended beyond the rate structure to other tax policy debates that historically have sounded in efficiency rather than equity. The double-distortion argument in the income-consumption tax debate, or the idea of revenue-maximizing capital gains rates in light of the realization rule, also might be susceptible to Repetti’s understanding of efficiency as enforcing (false) certainty against equity’s more holistic appeal. Repetti alludes to the equity and equality implications of both of these longstanding issues, and these questions offer interesting avenues for extending Repetti’s call to return to equity norms in taxation.

Overall, Repetti’s sweeping and authoritative article yields important support to a revival of equity norms in tax law and policy. Tax scholars and policymakers, especially in the Biden administration, would be well-served by close attention to the breadth and depth of Repetti’s convincing analysis.

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

• Ashish Agarwal (Texas, Red McCombs School of Business), Shannon Chen (Arizona, Dept. of Accounting) & Lillian F. Mills (Texas, McCombs School of Business), Entity Structure and Taxes: An Analysis of Embedded Pass-Through Entities, __ Acct. Rev. __ (forthcoming 2021)
• Paul Brezina (Vienna University of Economics and Business), Eva Eberhartinger (Vienna University of Economics and Business) & Maximilian Zieser (Vienna University of Economics and Business), The Future of Tax Audits? The Acceptance of Online-Based, Automated Tax Audits and their Effects on Trust and Power, WU Int’l Tax’n Res. Paper Series No. 2021-02
• Jean-Edouard Colliard (HEC Paris, Finance Dept.), Lorraine Eden (Texas A&M) & Co-Pierre Georg (University of Cape Town), Tax Complexity, Tax Certainty, and the Pillar One and Two Blueprints Submission to the OECD Centre for Tax Policy and Administration in Response to the Public Consultation Document on the Reports on the Pillar One and Pillar Two Blueprints (2020)
• Antonio De Vito (IE University, IE Business School) & Martin Jacob (WHU – Otto Beisheim School of Management), The Role of Creditor Protection in Lending and Tax Avoidance (2020)
• Maarten Floris de Wilde (Erasmus University, Rotterdam), Where’s the Source? Ambiguities in the Principles of International Taxation (2020)
• Michelle Lyon Drumbl (Washington & Lee), Bankruptcy, Taxes, and the Primacy of IRS Refund Offsets: Copley v. United States, __ S.C. L. Rev. __ (forthcoming 2021)
• Lorraine Eden (Texas A&M), Leap of Faith: The Economic Impact Assessment of the Pillar One and Pillar Two Blueprints, 49 Tax Mgmt. Int’l J. 591 (2020)
• Lorraine Eden (Texas A&M), Pillar One Tax Games, 50 Tax Mgmt. Int’l J. __ (2021)
• Lorraine Eden (Texas A&M), Winners and Losers: the OECD’s Economic Impact Assessment of Pillar One, 49 Tax Mgmt. Int’l J. 597 (2020)
• Albert Feuer (independent), Ethics, Earnings, ERISA and the Biden Administration, 62 Tax Mgmt. Memo. 23 (2021)
• Brett Freudenberg (Griffith University) & Anna Mortimore (Griffith University), Building Students’ Self-Efficacy through the “Tax Firm’” Case Studies: The Effect of Prior Professional Work Experience, 15 J. Austl. Tax Teachers Assn. 165 (2020)
• Brett Freudenberg (Griffith University), Colin Perryman (Griffith University), Kristin Thomas (Griffith University) & Melissa Belle Isle (Griffith University), The Griffith Tax Clinic, 22 J. Austl. Tax 64 (2020)
• Alexander Robert Fullarton (Curtin Law School), Miners’ Motivation: The Mass-Marketed Tax Avoidance Schemes of the 1990s in the Pilbara Region of Western Australia (2013) (unpublished Ph.D. thesis, University of New South Wales)
• Brian D. Galle (Georgetown), Andrew Lund (Villanova) & Gregg D. Polsky (Georgia), Does Tax Matter? Evidence on Executive Compensation After 162(M)’s Repeal, __ Stan. J.L. Bus. & Fin. __ (forthcoming 2021)
• Ariel Jurow Kleiman (San Diego), Impoverishment by Taxation, San Diego Legal Studies Paper Forthcoming (2021)
• Dan Lynch (Wisconsin, Dept. of Accounting and Information Systems), Max Pflitsch (University of Cologne) & Michael W. Stich (University of Cologne), Earnings Management around the Tax Cuts and Jobs Act of 2017 (2020)
• Anna Shashkova (MGIMO University), Vietnam Tax Policy Model (2020)