The Right Tax at the Right Time

182 Pages Posted: 2 Dec 2016 Last revised: 31 Jan 2018

See all articles by Edward D. Kleinbard

Edward D. Kleinbard

University of Southern California Gould School of Law, Deceased

Date Written: January 30, 2018


The companion paper to this (Capital Taxation in an Age of Inequality) argues that a moderate flat-rate (proportional) income tax on capital imposed and collected annually has attractive theoretical and political economy properties that can be harnessed in actual tax instrument design. This paper continues the analysis by specifying in detail how such a tax might be designed.

The idea of the Dual Business Enterprise Income Tax, or Dual BEIT, is to offer business enterprises a neutral profits tax environment in which to operate, in which normal returns to capital are exempt from tax by means of an annual capital allowance termed the Cost of Capital Allowance (COCA). In turn, investors in firms include in income each year the same COCA rate, applied to their tax basis in their investments. The result is a single tax on capital income (rents plus normal returns), where the tax on normal returns is imposed directly on the least mobile class of taxpayers. Labor income continues to be taxed at progressive tax rates.

The paper considers in detail three particular design issues. First, because labor is taxed at progressive rates whose top rate exceeds the capital income rate, the Dual BEIT must specify a labor-capital income tax centrifuge, to tease apart labor from capital income when the two are intertwined in the case of the owner-entrepreneur of a closely-held firm. Second, the paper considers the theory and practice behind the choice of the COCA rate. Third, the paper specifies an international tax regime that should be attractive to firm managers yet robust to stateless income gaming.

Throughout, the emphasis is on developing pragmatic technical solutions that are implementable without profound transition issues, that are administrable, and that fairly balance theoretical desiderata against political economy realities.

Suggested Citation

Kleinbard, Edward D., The Right Tax at the Right Time (January 30, 2018). Florida Tax Review, Vol. 21, 2017, USC CLASS Research Paper No. CLASS16-32, USC Law Legal Studies Paper No. 16-36, Available at SSRN: or

Edward D. Kleinbard (Contact Author)

University of Southern California Gould School of Law, Deceased

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics