My colleague Daniel Goldberg has just published a fascinating book, The Death of the Income Tax: A Progressive Consumption Tax and the Path to Fiscal Reform (Oxford, 2013). As the title suggests, Professor Goldberg (i.e., Dan) maintains that an income tax devised in 1913 is both outdated and counter-productive. He argues with great vigor that what we need is a progressive tax on consumption that can be administered electronically. The result, in his view, will be more revenue and greater equity. In short, something for both liberals and conservatives alike.
One central theme of the book is that progressive income taxation in practice is a lot less attractive than progressive income taxation in theory. Dan details at least three major problems with income tax policy in the United States that ought to be of great concern to all citizens. First, the income tax is very expensive to collect. The best things in life are free, which may explain why the Internal Revenue System is so costly. Second, cheating is endemic. A very high proportion of Americans successfully manage to pay far less taxes than the law demands. Third, the tax system is riddled with loopholes. Few people pay what a glance at basic tax rates suggest they should pay. The last two points are particularly important when thinking about the progressivity of the income tax. To the extent that cheating and taking advantage of loopholes are largely elite phenomenon, the income tax burdens less fortunate Americans far more than advertized. Dan maintains that Americans could easily design a progressive consumption tax that would be much cheaper to implement, much less prone to cheating, and far simpler than the present income tax. The second part of the book details exactly how that might occur.
Whether the electronically progressive consumption tax will function as smoothly and as progressively as Dan believes is a matter on which I am not competent to say (I kept turning pages hoping for a reference to slavery in the territories or early nineteenth century land law). Nevertheless, The Death of the Income Tax has much to offer liberals and conservatives whether they are experts on tax policy or not. To begin with, Dan is a wonderfully engaging writer. Numerous bot mots leap at the reader, all of which facilitate rather than retard the basic themes of the book. In short, the book is an easy read. The Death of the Income Tax is also a terrific guide for the novice interested in learning about the way taxes function in the United States and alternative means for taxation. If you want to learn about tax policy and wish to avoid a standard text, Dan’s book would be a great choice. The book has much to offer all citizens, whether they are tax experts, veterans of an 18 year course on tax entitled "Dinner Table," or know nothing about the subject.
Dan’s study of the income tax also raises some questions about American political and constitutional development that have implications far beyond tax policy. As Sandy Levinson reminds us from time to time, Americans have difficulty imagining alternatives to the ways in which politics functions in the United States. If we should think seriously about whether a Constitution designed for an eighteenth century polity can function well in the twenty-first century, then surely there is serious room for contemporary Americans to consider whether the best means for raising revenue people could devise at the beginning of the twentieth century remains the best means for raising revenue one-hundred years later. Relying on the income tax in 2013 may be as out-of date as relying primarily on tariffs for revenue in 1913.
The Death of the Income Tax also highlights what I believe is the most liberal strand in libertarian thinking. Limited government tends to have three types of justifications. The first is that government intervention violates individual rights, most notably property rights. The second is that government intervention is inefficient, that free markets create more wealth than regulation. The third is that government intervention in practice is highly skewed to the interest of the most fortunate. This defense of libertarianism was quite prominent in the works of such nineteenth century Jacksonians as William Leggett and, later, William Graham Sumner. Andrew Jackson also defended limited government on the ground that government was far more likely to serve affluent interests than redistribute property. Leggett, Sumner, and Jackson would no doubt have said “I told you so” had they read Goldberg's chapters meticulously detailing the way in which a redistributive tax policy in theory more often promotes elite causes in practice. Whether an electronically administered progressive consumption tax will alleviate these problems is a fair question, but Dan’s book reminds all progressives that tax and other policies that redistribute downward in theory often redistribute upwards in practice.