The Case for Taxing (All of) Labor Income, Consumption, Capital Income, and Wealth
88 Pages Posted: 14 Jul 2014 Last revised: 23 Nov 2015
Date Written: July 1, 2015
Perhaps the most fundamental questions in tax legal scholarship concern debates about what should be the ideal tax base or tax bases. In particular, scholars have vigorously disagreed about (1) whether the United States should follow other developed countries in supplementing its income tax with a value-added consumption tax, and (2) whether governments should seek to tax capital income and wealth or should instead seek to redesign or replace income taxes with progressive consumption taxes.
The prior economics-oriented theoretical literature on these questions has largely focused on analyzing labor supply and savings behaviors. Yet the existing empirical literature does not support the inference that either labor supply or savings behaviors are likely to be of primary importance. This Article thus focuses instead on analyzing a variety of more idiosyncratic and context-dependent ways in which taxpayers respond to taxation. This analysis demonstrates a relatively strong case for taxing (all of) labor income, consumption, capital income, and wealth.
Keywords: optimal tax, tax law, income tax, value added tax, VAT, capital income tax, wealth tax, capital tax
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