Who Wins When Uncle Sam Loses? Social Insurance and the Forgiveness of Tax Debts

Shu-Yi Oei

Tulane Law School

February 29, 2012

UC Davis Law Review, Vol. 46, 2012
Tulane Public Law Research Paper No. 12-3

Small-scale tax collections decisions have large-scale distributive consequences. The central question addressed in this Article is whether a deliberate government decision to forgive or to not collect a tax owed can be justified, given the distributive consequences that may result. In brief, the government’s decision not to pursue full collection of a delinquent tax debt may give rise to two types of distributive outcomes: First, the benefits of non-collection may be captured by the forgiven taxpayer’s other creditors. Second, the costs of non-collection may be imposed upon compliant taxpayers and the public through higher taxes, decreased government provision of goods, services, and social assistance, or other macroeconomic impacts. These distributive outcomes may outweigh the potential justifications for tax non-collection. This Article demonstrates, however, that a social insurance framework, which conceptualizes tax non-collection as a transfer of the risk of financial distress from the taxpayer to the government in exchange for payment of an insurance premium, may justify these distributive outcomes and may hence justify the non-collection of tax debts. Further research is required to determine the extent to which tax non-collection procedures should be used to deliver social insurance, particularly given the existence of other government-provided social insurance programs.

Number of Pages in PDF File: 66

Keywords: Taxation, Tax Procedure, Tax Collections, Social Insurance, Social Assistance, Social Welfare, Bankruptcy, Debtor-Creditor Law

JEL Classification: H20, H21, H22, H23, H24, H25, H26, H29, G22, G33, H55

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Date posted: February 29, 2012 ; Last revised: January 26, 2016

Suggested Citation

Oei, Shu-Yi, Who Wins When Uncle Sam Loses? Social Insurance and the Forgiveness of Tax Debts (February 29, 2012). UC Davis Law Review, Vol. 46, 2012; Tulane Public Law Research Paper No. 12-3. Available at SSRN: https://ssrn.com/abstract=2013563 or http://dx.doi.org/10.2139/ssrn.2013563

Contact Information

Shu-Yi Oei (Contact Author)
Tulane Law School ( email )
6329 Freret Street
New Orleans, LA 70118
United States
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