Delmotte: Redistribution Without Romance

Charles Delmotte (Michigan State; Google Scholar), Redistribution without Romance: 

Various tax scholars advocate for higher taxes on the wealthy to curb their influence on public policy. This "political economic" case for redistribution has recently gained extra traction through the Law and Political Economy (LPE) movement. While both tax and non-tax scholars defer to the tax system to implement higher taxes on the wealthy and reduce their political influence, the current literature lacks a comprehensive model of how this system operates. 

This Article fills that lacuna and offers a new model of "tax law capture" that shows that the legislation and administration of tax law are systematically influenced to serve the interests of well-funded industries and economic players. This model informs the "political economic" case for redistribution. A realistic analysis reveals that redistributive taxation may be subject to the very problem it seeks to remedy: well-intended tax schemes can exacerbate the influence of affluent taxpayers on the tax system, undermining their own redistributive potential. This Article analyzes the two most popular proposals to increase taxes on the rich: the mark-to-market income tax (taxing unrealized capital appreciation) and taxing via ULTRAs (unliquidated tax reserve accounts, i.e., the government taking notional interests in taxed assets). A deromanticized analysis reveals that such measures may expand the scope of private capture of tax law. 

This Article shows that whether redistributive taxation reduces the influence of the wealthy over the tax system, and thus effectively redistributes wealth, depends on how it is designed. Tax schemes that diminish the influence of the wealthy over the tax system are "rule-based" and minimize discretion in calculating tax liabilities. Successful tax rules also minimize entanglement between The Department of the Treasury and the wealthy.  This Article revives the idea of a retrospective capital gains tax to meet these requirements. Under this measure, taxes are due at the point of realization, yet include an interest charge calculated on the deferred annual tax liability. This increased taxation on capital assets achieves redistribution without introducing discretionary elements or further entanglement with the government.

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