Tax Now or Tax Never: Political Optionality and the Case for Current-Assessment Tax Reform

71 Pages Posted: 10 Mar 2021 Last revised: 18 Feb 2022

See all articles by David Gamage

David Gamage

University of Missouri School of Law

John R. Brooks

Fordham University School of Law

Date Written: 2022


The U.S. income tax is broken. Due to the realization doctrine and taxpayers’ consequent ability to defer taxation of gains, taxpayers can easily minimize or avoid the taxation of investment income, a failure that is magnified many times over when considering the ultra-wealthy. As a result, this small group of taxpayers commands an enormous share of national wealth yet pays paltry taxes relative to the economic income their wealth produces—a predicament that this Article condemns as being economically, politically, and socially harmful.

The conventional view among tax law experts has assumed that the problems created by the realization doctrine can be fixed on the back end by adjusting the rules that govern taxation at the time of realization. Specifically, most tax scholars have favored reform proposals that would retain the realization doctrine, but that would aim to impose taxes in a way that would erase or reduce the financial benefits of deferral. Examples include retrospective capital gains tax reforms, progressive consumption tax reforms, and more incremental reforms such as ending stepped-up basis.

However, this Article argues that these future-assessment reform proposals ignore a crucial additional problem of deferral—political optionality. If there is a many-year or longer gap between when either income is earned or wealth is accrued and when tax is assessed, then any number of things can happen in the interim to undermine the eventual assessment and collection of tax. This Article explains three sets of pressures that tend to erode future-assessment reforms over time: (1) policy drift and the need for incremental bolstering of tax reforms, (2) the time value of options, and (3) federal budget rules and related political incentives.

By contrast to future-assessment reforms, this Article explains how current-assessment reforms—like wealth tax or accrual-income tax reform proposals—are relatively resistant to these pressures. As this Article demonstrates, both theory and historical experience reveal that future-assessment reforms are fragile and often fail—and that ultra-wealthy taxpayers are well aware of this. Therefore, accounting for the implications of political optionality, only current-assessment reforms are likely to succeed at meaningfully taxing the ultra-wealthy and fixing the personal tax system.

Keywords: Tax Reform, Income Tax, Investment Income, Realization Doctrine, Wealth Tax, Political Optionality

JEL Classification: K, K34

Suggested Citation

Gamage, David and Brooks, John R., Tax Now or Tax Never: Political Optionality and the Case for Current-Assessment Tax Reform (2022). 100 North Carolina Law Review 487 (2022), Indiana Legal Studies Research Paper No. 437, Available at SSRN:

David Gamage (Contact Author)

University of Missouri School of Law ( email )

Missouri Avenue & Conley Avenue
Columbia, MO MO 65211
United States


John R. Brooks

Fordham University School of Law ( email )

140 West 62nd Street
New York, NY 10023
United States

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