Accretion-Based Progressive Wealth Taxation

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David Hasen


A large literature has compared the efficiency properties of income and consumption tax bases. Its general conclusion is that a consumption base dominates an income base, except to the extent that practical compliance and administrative problems create opportunities for avoidance and evasion under a consumption tax that are absent under an income tax. An apparent corollary is that the same superiority holds in the comparison of an ideal accretion wealth tax and an ideal consumption tax, because an accretion wealth tax seems not to differ in relevant ways from an ideal income tax.

This article argues that these conclusions are significantly qualified. A progressive accretion wealth tax can curb negative externalities that remain in place under a consumption or an income tax, and it can do so more effectively than an excise wealth tax; the article accordingly argues for an accretion tax as a supplement to existing federal taxes (or to a consumption tax, if enacted). The article also argues that any practicable consumption tax creates timing distortions absent under an accretion-type tax, whether on income or on wealth, because of the need for progressivity in rates. Policymakers need to consider all of these issues when weighing the relative merits of income, consumption, and wealth taxes.

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