Deconstructing Haig-Simons Income and Reconstructing It as Objective Ability-to-Pay Income

54 Pages Posted: 8 May 2012  

Joseph M. Dodge

Florida State University - College of Law

Date Written: May 7, 2012


The Haig-Simons concept of income has for roughly fifty years been a gold standard of income tax theory and policy discussion. This article argues that the classic Haig-Simons formulation of personal income, which consists of an individual’s consumption plus net increases in wealth for the taxable year, could not be maintained by Simons himself, is contrary to fundamental political values, is unnecessary, and is inferior to an objective ability-to-pay realization personal income tax. Specifically, the Haig-Simons concept simply gets it wrong insofar as it posits that consumption is an independent category of income. That leaves “consumption” as a deduction-disallowance principle, but in that respect the concept is ambiguous and insufficient. Finally, the notion of “changes in wealth” hasn’t made headway, due to the persistence of the realization principle. The problems attending the Haig-Simons income concept, as well as Simons’ goal of designing a redistributive tax, are resolved under an objective ability-to-pay personal income concept.

Part I uncovers the basic ambiguity as to the role of “consumption” under the Haig-Simons concept of income, and demonstrates that consumption under the Haig-Simons concept should not be interpreted as a gross income principle. Thus, imputed income (and other intangible benefits received) are not properly viewed as gross income in the tax sense. Instead, consumption is merely a deduction-disallowance principle, and an insufficient (or incomplete) one at that. Part II discusses normative criteria underlying an income tax that point towards an objective ability-to-pay realization personal income tax. The notion of objective ability to pay is an internal-to-tax tax fairness norm that is constructed from the ground up by considering the role of taxation (in a liberal society) to raise cash revenue in an annual budget cycle. It also happens that an ability-to-pay personal income tax can, itself perform a mildly redistributive function. (Incidentally, it is argued in this part that indexing of basis is improper from a tax fairness perspective.) Part III follows with an outline of basic features of such a tax. Some controversial points raised in Part III include abolition of the accrual method of tax accounting, disallowing depreciation deductions, and a thorough revamping of the tax treatment of borrowing.

Suggested Citation

Dodge, Joseph M., Deconstructing Haig-Simons Income and Reconstructing It as Objective Ability-to-Pay Income (May 7, 2012). FSU College of Law, Public Law Research Paper No. 595; FSU College of Law, Law, Business & Economics Paper No. 12-10. Available at SSRN: or

Joseph M. Dodge (Contact Author)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States
850-644-4590 (Phone)

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