The Definitions of Income

55 Pages Posted: 10 Mar 2017  

John R. Brooks

Georgetown University Law Center

Date Written: 2017

Abstract

What is income? It’s a seemingly simple question that’s surprisingly hard to answer. Income is the basis for assigning tax burdens, for distributing transfers, and for broader normative issues of inequality and justice. Yet we lack a shared conception of income, and a pure, rigorous definition of income is impossible. In this Article I review the intellectual history of the income concept among tax and fiscal theorists to show the difficulty of the problem, and also to show that some important debates about what’s proper under an income tax can be explained instead as arguments over competing income definitions that necessarily incorporate policy choices. These insights are applied to more modern questions, like the role of tax expenditure analysis and optimal income tax theory. I also perform — for the first time in the literature — a close examination and comparison of 12 different income definitions used by the federal government for different purposes. This examination illustrates that there is wide range of income concepts actively in use, but that the measure of income for tax purposes has a prominent and growing role.

This Article concludes that income is not a pure, external concept, but actually a constructed concept that necessarily embodies policy, and therefore political, goals. The differences between the income concepts and definitions examined here result directly from the policy goals of the various agencies, analysts, and scholars using those concepts. Therefore, the increasing reliance on the measure of income for tax purposes risks erroneously exporting what are essentially tax policy decisions into non-tax areas, such as transfer policy, health care subsidization, higher education grants and loans, and broader discussions on income inequality and economic justice.

Keywords: Taxation, Law and Economics, Income Measurement

JEL Classification: K00, K34

Suggested Citation

Brooks, John R., The Definitions of Income (2017). 71 Tax L. Rev. __ (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2928972 or http://dx.doi.org/10.2139/ssrn.2928972

John R. Brooks (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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