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The Future of Capital Income Taxation *

The Future of Capital Income Taxation * †University of California, Berkeley ([email protected]) Despite our limitations as forecasters, economists are prone to thinking about the future. A declining number of economists see a future for capital income taxation. The disenchantment with capital income taxes is not new, of course. Joseph Pechman’s 1990 presidential address to the American Economic Association had a title similar to mine (‘The Future of the Income Tax’), and took on many of the issues I will address here. Pechman concluded that ‘there is no good reason for the disenchantment of economists with the income tax. The main rival of the income tax – the consumption expenditure tax – is distinctly inferior on theoretical as well as practical grounds’.1 In light of what we know today, I cannot agree with either of Pechman’s conclusions. We have accumulated many good reasons to be disenchanted with the income tax, and the case for the consumption expenditure tax is not easily dismissed. Indeed, the case against capital income taxation is stronger now than when Pechman wrote, given the difficulty of collecting capital income taxes in a world of financial innovation and capital mobility. But capital income taxes are still with us, and it is useful http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Fiscal Studies Wiley

The Future of Capital Income Taxation *

Auerbach, Alan J.
Fiscal Studies , Volume 27 (4) – Dec 1, 2006
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References (56)

Publisher
Wiley
Copyright
Copyright © 2006 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0143-5671
eISSN
1475-5890
DOI
10.1111/j.1475-5890.2006.00040.x
Publisher site
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Abstract

†University of California, Berkeley ([email protected]) Despite our limitations as forecasters, economists are prone to thinking about the future. A declining number of economists see a future for capital income taxation. The disenchantment with capital income taxes is not new, of course. Joseph Pechman’s 1990 presidential address to the American Economic Association had a title similar to mine (‘The Future of the Income Tax’), and took on many of the issues I will address here. Pechman concluded that ‘there is no good reason for the disenchantment of economists with the income tax. The main rival of the income tax – the consumption expenditure tax – is distinctly inferior on theoretical as well as practical grounds’.1 In light of what we know today, I cannot agree with either of Pechman’s conclusions. We have accumulated many good reasons to be disenchanted with the income tax, and the case for the consumption expenditure tax is not easily dismissed. Indeed, the case against capital income taxation is stronger now than when Pechman wrote, given the difficulty of collecting capital income taxes in a world of financial innovation and capital mobility. But capital income taxes are still with us, and it is useful

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Fiscal Studies – Wiley

Published: Dec 1, 2006

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