Friday, October 6, 2023
Linda Sugin (Fordham; Google Scholar) presents Proxy Taxes at Boston College today as part of its Tax Policy Workshop hosted by Jim Repetti and Diane Ring:
This article offers a conceptual and theoretical framework for seemingly oddball and unprincipled provisions in the Internal Revenue Code, praising them for increasing progressivity and producing revenue. “Proxy taxes” impose liability on taxpayers with ability to pay who are connected, in some way, to income earners who pay insufficient or no tax on that income. Given the combination of rising income and wealth inequality and the political impossibility of raising taxes on income in a straightforward way, policymakers should embrace proxy taxes as a flexible solution to a pressing tax justice problem. This article argues that proxy taxes contribute to a more comprehensive income tax system, despite their departure from classic income tax principles, and can also be more efficient than higher taxes imposed on income.
While accepting the corporate governance critiques in the literature, the article endorses §162(m)’s limit on the deduction for executive compensation as a great proxy tax on labor income. It also commends the Inflation’s Reduction Act’s tax on corporate stock purchases as a proxy tax on capital income. With the framework established in these examples, the article proposes that Congress extend proxy taxing to address a variety of intractable problems in taxing income fully. It offers proxy tax proposals to increase marginal income tax rates, abrogate the benefit of the step-up in basis at death, and reduce the windfall from contributing appreciated property to charity.