When Should Means Matter? The Case of Tax Compliance

25 Pages Posted: 1 Feb 2023 Last revised: 4 Apr 2023

Date Written: February 1, 2023


When should policymakers incorporate individuals’ economic means, such as wealth and income, into the design of legal rules? Two principles in legal theory typically favor uniform legal rules, which do not vary based on individual characteristics. First, under the “double distortion” principle in the law and economics literature, means-based adjustments to legal rules should be reserved for the tax system alone. Second, theories of the rule of law also favor generally applicable legal rules, rather than those targeted to certain individuals or groups.

Because of its core distributive function, the progressive tax system represents a prominent exception to these principles favoring uniform legal rules, and explicitly accounts for individuals’ economic means when determining tax liabilities.

This article considers the following question: when are means-based adjustments to the tax compliance rules justified? Tax compliance rules govern the enforcement and administration of the tax law. For example, the tax compliance rules provide for information reporting requirements, statutes of limitations, and penalties for noncompliance. As we have argued in prior work, income- or wealth-based adjustments to these rules could enable them to address the challenges of high-end noncompliance more effectively by counteracting the tax avoidance opportunities available to high-end taxpayers.

This article argues that the tax compliance rules represent a unique category of legal rules due to their role in implementing the substantive tax rules and their core distributive function. As a result, means-based adjustments should therefore be subject to a different analysis under the principles favoring uniform legal rules. As we argue, the analysis of means-based adjustments should depend critically on their design and function in the tax system. Under the double distortion principle, means-based adjustments would be warranted when necessary to implement the redistributive function of the tax and transfer system, which is the ideal situs for redistribution within this principle. Under certain conceptions of the rule of law’s generality principle, these adjustments would be similarly necessary when they are designed to account for advantages that high-end taxpayers enjoy under generally applicable tax compliance rules.

Keywords: Tax Compliance, Tax Procedure, Tax Avoidance, Tax Enforcement, IRS, Tax Penalties, Means-Based Adjustments, Deterrence, High-Income Taxpayer, Progressive Taxation

JEL Classification: H20, H23, H24, H25, H26, H29, K34

Suggested Citation

Blank, Joshua D. and Glogower, Ari D., When Should Means Matter? The Case of Tax Compliance (February 1, 2023). Virginia Tax Review, Forthcoming, UC Irvine School of Law Research Paper No. 2023-03, Northwestern Law & Econ Research Paper No. 23-05, Available at SSRN: https://ssrn.com/abstract=4344791

Joshua D. Blank (Contact Author)

University of California, Irvine School of Law ( email )

401 E. Peltason Dr.
Ste. 1000
Irvine, CA 92697-1000
United States

HOME PAGE: http://www.law.uci.edu/faculty/full-time/blank/

Ari D. Glogower

Northwestern Pritzker School of Law ( email )

750 N. Lake Shore Drive
Chicago, IL 60611
United States

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