Ari Glogower


Progressive Tax Procedure

Joshua D. Blank, Ari Glogower

Abusive tax avoidance and tax evasion by high-income taxpayers pose unique threats to the tax system. These strategies undermine the tax system’s progressive features and distort its distributional burdens. Responses to this challenge generally fall within two categories: calls to increase IRS enforcement and “activity-based rules” targeting the specific strategies that enable tax avoidance and evasion by these taxpayers. Both of these responses, however, offer incomplete solutions to the problems of high-end noncompliance.

This Article presents the case for “progressive tax procedure”—means-based adjustments to the tax procedure rules for high-income taxpayers. In contrast to the activity-based rules in current law, progressive tax procedure would tailor rules to the economic circumstances of the actors rather than their activities. For example, under this approach, a high-income taxpayer would face higher tax penalty rates or longer periods where the IRS could assess tax deficiencies. Progressive tax procedure could also allow an exception for low-value tax underpayments, to avoid excessive IRS scrutiny or unduly burdensome rules for less serious offenses.

Progressive tax procedure could address the unique challenges posed by high-end tax noncompliance and equalize the effect of the tax procedure rules for taxpayers in varying economic circumstances. It could also complement the alternative approaches of increasing tax enforcement and activity-based rules while avoiding the limitations of relying exclusively on these responses.

After developing the normative case for progressive tax procedure, the Article illustrates how it could be applied in three specific areas: accuracy-related tax penalties, the reasonable cause defense, and the statute of limitations. These applications illuminate the basic design choices in implementing progressive tax procedure, including the types of rules that should be adjusted and the methods for designing these adjustments.

Taxing Inequality

Ari Glogower

Economic inequality in the United States is now approaching historic levels last seen in the years leading up to the Great Depression. Scholars have long argued that the federal income tax alone cannot curtail rising inequality and that we should look beyond the income tax to a wealth tax. Taxing wealth also faces two central and resilient objections in the literature: A wealth tax penalizes savings and overlaps with a tax on capital income.

This Article moves beyond this stalemate to redefine the role of wealth in a progressive tax system. The Article first introduces a generalized framework for justifying a wealth tax centered in the relative economic power theory which explains how inequality of economic outcomes generates social and political harm. This theory formalizes the problem of inequality and has specific implications for how economic inequality should be measured and constrained.

The Article then describes design problems in coordinating taxes on labor income, capital income, and wealth as factors in inequality, and the limitations of each of these factors as a base for taxation. From this Article’s outcomes-based perspective, a capital income tax favors wealth holders relative to labor-income earners. A wealth tax, in contrast, disfavors wealth holders relative to labor-income earners and cannot account for taxpayers’ varying needs to save their wealth for different numbers of future periods. Finally, proposals in the literature for separate taxes on both income and wealth do not account for the relationship between the two as factors in economic well-being.

Finally, the Article introduces a redefined wealth tax as part of a new combined tax on both income and wealth. This approach first recharacterizes wealth and capital income as an annuity value (the “wealth annuity”), reflecting both capital income earned during the period and a portion of the taxpayer’s wealth principal. The wealth annuity is then added to the taxpayer’s labor income for the period to yield the combined base. This new tax base resolves the coordination problems with taxing labor income, capital income, and wealth as factors in economic inequality; accounts for the needs of savers; and tailors the tax base to the specific ways that inequality causes social and political harm.