By: Leandra Lederman

On February 20, 2020, the Indiana University Maurer School of Law welcomed our third Tax Policy Colloquium guest of the year: Prof. Zachary Liscow from Yale Law School. Zach presented his draft article titled “Equality, Taxation, and Law and Economics In the 21st Century.”

As its title suggests, the article takes on income inequality. The article argues that the standard approach of redistributing only through the tax system and hinging non-tax policies on efficiency is misguided. It makes the case that (1) people want more equality than we currently have; (2) people do not think of tax and transfers together and fungibly trade off between types of redistribution but instead have (conceptually) “separate public accounts” for taxation and other government activities; (3) in part, that is because people have an idea of “desert” that is linked to cash income, resulting in resistance to heavily redistributionist taxation; and thus (4) rather than striving for “optimal” taxation and efficient legal rules, the government should tilt non-tax policies (such as transportation policy) to increase their redistributive aspects. As the abstract states, this argument “turns standard economics prescriptions on their heads.”

The article is fascinating and a compelling read. The idea that people think separately about taxes and transfers seems very plausible. I had not thought before about the idea of desert applying to pre-tax income but it is quite persuasive. It adds a further layer to the argument I made in a 2004 article titled “The Entrepreneurship Effect.” That article argued that the Internal Revenue Code systematically favors business deductions over investment deductions; the difference between them is that the former require labor and the latter do not; and this reflects societal favoritism for entrepreneurship. The idea that “desert” particularly inheres in labor income adds a layer in that it helps source the societal value put on labor income and entrepreneurship. Continue reading “IU Tax Policy Colloquium: Liscow, “Equality, Taxation, and Law and Economics In the 21st Century”” →