About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

58 Stan. L. Rev. 1413 (2005-2006)
The Superiority of an Ideal Consumption Tax over an Ideal Income Tax

handle is hein.journals/stflr58 and id is 1427 raw text is: THE SUPERIORITY OF AN IDEAL CONSUMPTION TAX OVER AN IDEAL INCOME TAX Joseph Bankman* and David A. Weisbach** This Article considers the arguments regarding the choice between an ideal income tax and an ideal consumption tax, focusing on an argument first made by Atkinson and Stiglitz regarding neutral taxation of commodities. This argument shows that, under its assumptions, a properly designed consumption tax is Pareto superior to an income tax: it is either more efficient, more redistributive, or both. The Article illustrates the Atkinson-Stiglitz argument using the simple case in which investments produce risk-free returns, and individuals vary by their ability. It then considers more complex cases, such as risky returns, inherited wealth, heterogeneous savings rates, and the possibility of additional returns to savings, such as power, prestige, and security. Finally, it examines qualifications to the argument and circumstances under which an optimal tax might provide for some taxation of interest income. INTRODUCTION.............................................................................................. 1414 I. THE CORE ARGUMENT ............................................................................... 1417 A. Basic Definitions and Relationships Between the Bases................... 1417 B. Arguments for an Income Tax ........................................................... 1420 C. The AS 1976 Argument-Efficiency .................................................. 1422 D. The AS 1976 Argument-Redistribution ........................................... 1428 II. RISK AND PROFITS .................................................................................... 1431 III. WEALTH WITHOUT LABOR INCOME ....................................................... 1436 IV. SAVINGS HETEROGENEITY...................................................................... 1439 A. Rational Savings Decisions............................................................... 1441 B. Savings Myopia and Similar Problems ............................................. 1444 V. DOES SAVINGS BRING VALUE BEYOND FUTURE CONSUMPTION? .......... 1448 VI. QUALIFICATIONS..................................................................................... 1451 C ON CLU SION ............................................................................................... 1455 * Ralph M. Parsons Professor of Law and Business, Stanford Law School. ** Walter J. Blum Professor of Law, The University of Chicago Law School. We thank Louis Kaplow for comments and extensive discussions and Al Warren, Jeff Strnad, and participants at workshops at UCLA, Northwestern, and Chicago for comments. 1413

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most