Paul L. Caron

Tuesday, July 4, 2023

University Of Cambridge Hosts Conference Today On Tax, Public Finance, And The Rule Of Law

The two-day 6th Annual Tax Policy Conference on Tax, Public Finance and the Rule of Law concludes today at the Centre for Tax Law at the University of Cambridge Faculty of Law. U.S. Tax Prof presentations include:

Cambridge Center for Tax Law (2023)Alex Raskolnikov (Columbia), Distributional Limits of Legal Rules

The estate tax applies only to the rich, and so did the income tax for the first three decades of its existence. Many new taxes recently proposed by academics and politicians target only the rich as well. And any progressive tax takes more from the rich than from others. Yet no one has suggested that property law, contract law, antitrust or corporate law, to take just some examples, should have special, less favorable rules applicable only to the wealthy. This paper asks: why not? What is the problem with a separate law for the rich, especially given the long history of progressive taxation and the widespread academic support for the idea that legal rules should reflect distributional considerations as a general matter?

This puzzle, it turns out, is surprisingly difficult to solve. Neither political theory, nor economic analysis, nor practical design considerations offer a plausible answer. The difficulty with resolving the puzzle is itself instructive. It reveals that redistribution through legal rules is limited in a way that redistribution through the tax law is not. Legal reforms—at least reforms that anyone has suggested and defended thus far—simply cannot have a meaningful impact on the rapid growth of income and wealth inequality at the very top. In contrast, changes to legal rules can make a difference in addressing the other major inequality problem—the declining fortunes of those at the bottom. In other words, legal rules have real distributional limits, but they have a real distributional potential as well.

Henry Ordower (St. Louis; Google Scholar), Unbundling Social Security from the Payroll Tax:

To preserve social security as a welfare program primarily for older individuals and to ameliorate the distributional inequity of funding social security across income and wealth levels, this article recommends unbundling the benefit side of social security from its longstanding payroll tax funding mechanism. The article recommends replacing the payroll tax revenue with a budget allocation from general revenues accompanied by both revenue raisers and benefit limitations. Income tax rate increases linked to repeal of the FICA tax and tax expenditure limitations would enhance income tax revenue. Modifying social security benefits from their current overinclusive, entitlement structure for all to moderately needs-based entitlement possibly freed from the constraint of the current contribution requirement that makes social security underinclusive would help provide the older population an income facilitating dignified aging.

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