Weekly SSRN Tax Article Review And Roundup: Kim Reviews Delmotte's Predistribution Against Rent-Seeking — The Benefit Principle’s Alternative To Redistributive Taxation

This week, Young Ran (Christine) Kim (Cardozo; Google Scholar) reviews Charles Delmotte (Michigan State, Google Scholar), Predistribution Against Rent-Seeking: The Benefit Principle’s Alternative to Redistributive Taxation, 39 Soc. Phil. & Pol’y 1 (2023).

Taxation has several goals. The most obvious goal is to raise revenue for necessary government functions. A more controversial goal of taxation is a redistributive function to reduce the unequal distribution of income and wealth. Different theories of distributive justice endorse or oppose the legitimacy and/or effectiveness of the redistributive goal of taxation. In his recent article, Predistribution Against Rent-Seeking: The Benefit Principle’s Alternative to Redistributive Taxation, 39 Soc. Phil. & Pol’y 1 (2023), Charles Delmotte (Michigan State, Google Scholar) questions the redistributive goal of taxation and offers an alternative approach based on the benefit principle. The benefit principle means that “specific rules and institutions are acceptable to the extent that they create benefits for all individuals in society, or at least don’t make anyone worse off.” 

But the benefit principle opposes wealth accumulation from “rents” which is unrelated to economic productivity because such wealth accumulation cannot be mutually beneficial. Delmotte offers a more aggressive and proactive position than the traditional benefit principle and argues that we should reform the market by adopting a more predistributive corrective policy (i.e., preventing wealth accumulation through rent-seeking in the first place) rather than adopting a redistributive tax policy.

First, Delmotte justifies the use of the benefit principle by arguing that it aligns with people’s intuitions of mutual and beneficial exchanges and that it stands as a proper test to gauge the moral acceptability of specific sets of institutions. With this framework, Delmotte argues that our current market institutions are not ideal. With the presence of rent-seeking, the benefit principle is violated because rents take resources away from productive activities and gains are extracted without generating market return. To counter this, he argues there needs to be a predistributive policy response; which would require an alteration of market rules so that rent-seeking becomes less profitable. This may require more limited government intervention that allows certain industries and corporations to get subsidies at the expense of taxpayers and not give anything in return. While this limits a source of funds for certain industries and can look like it harms the benefit principle, rent-seekers would benefit from this. In the long term, there would be more competition, higher-quality goods and services, and increased innovation, which benefits everyone. Compared to egalitarian principles, benefit theorism is less “extreme.” Benefit theory takes a more qualitative approach and does not dismiss all profit seeking. Rather, it accepts profit-seeking if done in a mutually beneficial way.

Delmotte provides a good overview of the benefit principle and issues associated with rent-seeking. He challenges a popular framework for redistribution based on the luck-egalitarian idea and instead endorses a more market-based approach—the benefit principle. However, instead of following the simple utility-maximizing goal, he offers a more nuanced approach for equality and fairness and emphasizes the importance of predistribution rather than redistribution (or tax) to correct market failure. This article is a noteworthy addition to the current legal scholarship for wealth and equality and shows the potential for significant future contributions to the wealth tax discussion. It is a shorter piece than a regular law review article. If he works on the same topic in the future, I would suggest expanding the discussion to provide a more comprehensive view of his suggested reforms and to engage directly with the wealth tax debate.

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

• Andreas Kallergis (University of La Réunion; Université Paris), Territorial Scope of Double Taxation Conventions, Enclyclopédie Fiscalité internationale, 2024 (Jan. 8, 2024).
• Ariel Jurow Kleiman (Loyola Los Angeles), Shayak Sarkar (UC Davis), and Emily A. Satterthwaite (Georgetown), Taxing Nannies (Jan. 26, 2024).
• Conor Clarke (Washington University in St. Louis), Moore: The Overlooked Excise Power, Tax Notes Federal, Vol. 181, No. 10, pp. 1759-1766 (Dec. 4, 2023); Tax Notes International, Vol. 112, No. 10, pp. 1345-1352 (Dec. 4, 2023).
• Conor Clarke (Washington University in St. Louis), What Issues are Fair Game in Moore v. United States?, Yale Journal on Regulation, Online (Dec. 16, 2023).
• Daniel J. Hemel (NYU), Tax Regulations and the New Cost-Benefit Analysis, 181 Tax Notes Federal 1977 (Dec. 11, 2023).
• Georg Winkler (Vienna University of Economics and Business), Tax It before Exit: Exit Taxation and Greenfield Investments, WU International Taxation Research Paper Series No. 2024-01 (Jan. 16, 2024).
• Indra Abeysekera (Charles Darwin University), Sentiment Analysis of a Nomadic Tax Social Enterprise, Journal of Open Innovation: Technology, Market, and Complexity, Vol. 10, No. 1, 00179 (Sep. 11, 2023).
• Martin Jacob (WHU), Roni Michaely (University of Hong Kong), Stefano Rossi (Bocconi), The VAT Trap: How Consumption Tax Hikes Make Firms Pay Out More and Invest Less (Jan. 10, 2024).
• Vincent Ooi (Singapore Management University), CIT v AQQ: The Singapore GAAR and its Australasian Influences, [2023] British Tax Review 724-731 (Dec. 1, 2023).