The Appropriate Roles for Equity and Efficiency in a Progressive Individual Income Tax

23 Fla. Tax Rev. ___ (2020 Forthcoming)

Boston College Law School Legal Studies Research Paper No. 518

50 Pages Posted: 22 Oct 2019 Last revised: 26 Aug 2020

Date Written: March 31, 2020

Abstract

Increased focus on economic efficiency in formulating tax policy, at the expense of achieving equity, has resulted in decreased rate progressivity in our individual income tax. This decrease has exacerbated inequality.

There are several explanations for the intense focus on efficiency and reduced emphasis on equity. Predictions of efficiency gains from low individual income tax rates appear more certain than equity gains from progressive tax rates. Efficiency gains seem measurable, while equity gains appear intangible and unquantifiable. In addition, distributive justice, which underlies and shapes tax equity, exists in many abstract forms, some of which may not require progressive tax rates.

This Article argues, however, that the emphasis on efficiency is misplaced. Inequality imposes measurable costs on the health, social well-being, and intergenerational mobility of our citizens, as well as on our democratic process. This is corroborated by significant empirical analysis.
In contrast, empirical analysis shows that anticipated efficiency gains from low individual tax rates are speculative. A consensus exists among economists that taxes within the historical range of rates in the United States have little or no impact on labor supply. Moreover, economists cannot agree whether the myriad empirical studies on savings indicate that progressive tax rates decrease, increase, or have no impact on savings in the United States.

The clear harms arising from inequality and the uncertain harms arising from progressive tax rates, strongly support always giving equity at least equal weight with efficiency in formulating tax policy. But given the high level of inequality in the United States and the currently low and flat tax rate structure, equity should be given more weight than efficiency at this time. Emphasizing equity in a progressive individual income tax will contribute to the health and economic mobility of our citizens, as well as the stability of our democracy

Keywords: Tax Policy, Tax Equity, Efficiency, Inequality, Progressive Income Tax Rates

JEL Classification: H20, H21, K34

Suggested Citation

Repetti, James R., The Appropriate Roles for Equity and Efficiency in a Progressive Individual Income Tax (March 31, 2020). 23 Fla. Tax Rev. ___ (2020 Forthcoming), Boston College Law School Legal Studies Research Paper No. 518, Available at SSRN: https://ssrn.com/abstract=3470360 or http://dx.doi.org/10.2139/ssrn.3470360

James R. Repetti (Contact Author)

Boston College - Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States
617-552-8550 (Phone)
617-552-2615 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
281
Abstract Views
1,451
rank
121,560
PlumX Metrics