TaxProf Blog

Often our discussion of taxes, and indeed most of our legal policy discourse, focuses on the economy. In tax, we often talk about efficiency as the first among equals in a triad of principles that also include fairness and manageability. Also frequently, our concepts of equity and manageability focus heavily on economic costs and benefits and distribution tables. But too often we don’t talk about the concepts of democracy and how the tax system can promote or hinder it. In his article, A Democratic Perspective on Tax Law, Clint Wallace directs our attention to the existing writing on democracy and taxation and adds that for tax policy, there must be an analysis based on the democratic ideals we use to judge these policies. . Democracy must be based on efficiency, equity and manageability as separate criteria for the analysis of the tax system.

First, Wallace shows how efficiency, equity, and manageability currently have democratic blind spots. For example, in efficiency analysis, people ignore democracy when creating social welfare functions, adopt a libertarian view where the market precedes nature, or do not understand the context of government in which the rules are implemented. Equity often focuses solely on money distribution concerns and not power dynamics. The manageability is more concerned with the rights of taxpayers in the face of a dangerous government. And even when talking about the policy-making process, democracy is often not considered, with a few exceptions that Wallace cites. Democracy, then, rarely appears in our discussions.

Wallace then makes a positive case for why we should include democracy in fiscal policy analysis and policymaking processes. Ideally, the tax system should reinforce and promote democratic goals and values. He outlines three specific areas to examine with regard to democracy: promoting faith in democracy, supporting participation, and shaping economic political life.

On promoting faith in democracy, Wallace points out some ways in which the tax system can help or hurt. First, the tax system itself has a communicative value. What the tax system does to its people, from requiring onerous filing when the IRS already has information, to how tax burdens are distributed, communicates key values ​​to people. How the tax system works and government capacity can also affect people’s faith in both the tax system and the general operations of government, especially since it is a part of the state with which most people interact.

With respect to participation, the tax system can help provide a democratic voice. It can give voice by providing a form of control over the government and its institutions. You can also give a say, perhaps unevenly, in determining who can choose to structure their tax liability. It can also affect participation by encouraging or discouraging democratic capacity. A good tax system provides the government with the resources it uses to prepare citizens for education and has other policies within it that further that goal as well. But issues like the deduction of mortgage interest and how to favor places with high tax bases for educational spending show that the tax system hinders this part of participation.

On the subject of economic political life, the tax system can affect it in two ways. The first is that it can encourage or discourage non-domination. While the theory of what dominance is is nuanced and contested, at its core, dominance is about exerting power over others. So the focus here is how economic issues can sometimes cross over into political spheres and help or hurt democratic decision making. So taxes can help or hinder that with respect to distribution and its interaction with political power. Second, the tax system can also affect this economic political life by managing the economy. Taxes can affect issues of capital allocation, employment, and almost any part of society. The question here is whether the tax system, in this management, promotes values ​​of freedom, equality and dignity.

Wallace then takes these ideas and applies them to show how estate tax proposals improve democracy. Many have pointed out that the allocation of large sums of wealth has distorted our economic and political life. Those with more wealth have inordinate power and influence in all kinds of processes. Those with wealth also help bring to life the concept that only little people pay their taxes because they can defer taxes avoiding realization or other structures until they die. The wealth tax can support faith in democracy by showing that taxes apply to all people. You can ensure participation by providing some funds to pay for things like universal preschool and force the ultra-rich to opt in by reducing the ability to defer taxes by avoiding realisation. Finally, it helps shape political and economic life by trying to limit domination. As discussed above, the wealthy use their funds to further their political goals. And wealth, even if it is not used to influence politics, creates certain powers and honor within society.

In general, Wallace helps us create the contours of a new democratic approach to analyzing tax policy. He doesn’t explicitly define, for good reason, fully concepts like democracy and non-domination, but he does encourage us tax people to have these discussions and grapple with this debate in democratic theory. This invitation to contemplate and struggle with these concepts is welcome and necessary. We should work with the difficult concepts of democratic theory, engage with theorists in this area, and try to apply them to our analyzes of taxation.

In addition, Wallace does a good job of pushing back a problem that has grown in taxation, other areas of law, and policymaking, which is the domain of economic thought. In careful fashion, Wallace provides us with an important refusal to let economics always have a say. Almost all of our three criteria for fiscal policy now have an economic idea at their core. But often we do it without thinking about the implications for society at large, and without understanding the underlying assumptions there. Furthermore, among the criteria, the spin of efficiency as first among equals is problematic. Wallace, writing and adding his voice, urges us to think about how we all subtly import these ideas into our thinking.

So the article should serve as a call to all of us to think more deeply about how tax policies and processes affect our broader society and democratic goals. It should make us focus substantially on policies that generate positive results in that direction and, in terms of processes, on procedures that promote democratic objectives. That, in turn, would help make the tax discussion more relevant and rich.