|Reviewer(s):||Self, James K.|
Published by H-Business and EH.Net (October, 1998)
Joel Slemrod and Jon Bakija. Taxing Ourselves: A Citizen’s Guide to the
Great Debate Over Tax Reform. Cambridge, Mass.:
MIT Press, 1996. ix + 299 pp. Tables, notes, bibliography, and index. $27.50
(cloth), 0-262-193 75-2; $17.50 (paper), ISBN 0-262-69208-2.
Reviewed for H-Business and EH.Net by James K. Self
, Southern Illinois University (Carbondale)
This book is written as an overview and at times a detailed survey of the
United States income
tax system, and its proposed alternatives. The authors use concepts primarily
from economics and supported by references, and statistics consistent with the
intended depth of the subject matter. Statistical information is presented in
a basic and non-rigorous manner.
It is necessary to add a note of caution on the authors’
interpretations of the literature and of statistical data. The resulting
conclusions are somewhat biased due to their selective use of data and
references. For example, the authors
demonstrate a negative relationship between savings and the rate of return for
a period of time adjusted for certain conditions
(pp. 109-12). However, they selected a time series showing the relationship
between net private saving as a percentage of disposable income, and interest
rates on Baa corporate bonds,
adjusted for expected inflation, and the average marginal tax rate on personal
interest income, plus a fixed equity premium.
The main statistical problem is that interest rates on Baa corporate bonds are
not necessarily representative of the rates on different savings options nor is
there any consideration given to the other factors that lead to savings
decisions that may have directional offsetting magnitudes–for example,
performance of other major financial instruments, fluctuations in the economy
and its impact on the economic variables etc.
The target audience is given the impression that the studies presented are the
generally accepted ones amongst the experts which is not necessarily the case.
Some mention of the differences of opinions and conflicting studies were made
but there was little explanation of the bias the authors brought to the
discussion by their econometric selections.
Chapters one, and two give a brief general history of
the personal, and business income tax, and identify the perceived problems with
each; the exclusions and deductions from the tax base resulting in higher
percentage of tax on remaining revenue;
tax incidence, and the implications of resource allocation.
The earlier history is comparatively brief and used only to justify the
introduction of statistical data. The authors then proceed to discuss the
historical tax assessment in terms of which group pays and a discussion of what
percentage of Gross Domestic
Product these taxes represent. They highlight the shift in tax incidence over
the years and the relative stability of aggregated percent of tax paid to the
federal government for personal income taxes since the second world war. The
reader is made to appreciate how today’s tax system is the product of politics
and how tax legislation has changed continuously through the years, primarily
in response to questions of perceived fairness by the voting public.
Chapters three through five discuss the criteria commonly used to compare tax
systems. The elements of comparison are fairness, economic prosperity,
simplicity, and enforceability.
The authors neglect to acknowledge that these are the same requirements set
forth in Adam Smith’s The Wealth of Nations
(1776). Smith called them his four maxims on taxation. These maxims are
widely accepted and basing the criteria on them ensures that the comparison is
made on a sound theoretical foundation. Slemrod and Bakija then relate the
maxims to practical examples, with a useful discussion of the controversies
surrounding tax reform.
Chapters six through eight discuss proposals to replace the current tax system.
In these chapters, the authors incorporate historical international
experiences with various tax
They identify the proposed system and how it stands with reference to the four
maxims. Slemrod and Bakija identify two categories of tax reform proposals:
“those that accept the current income tax structure; and those that want to
abandon the income tax entirely for something quite different” (p. 161).
They look closely at the flat tax and identify three distinct dimensions of
flat taxes: a single rate, consumption base, and clean tax base. Single rate
refers to one tax rate for all taxpayers
. Consumption base refers to taxing the value of what people consume. Clean
tax base refers to removing exempt items
>from the tax code. Using these three dimensions, they discuss each reform
proposal, to what degree it applies the three flatness dimensions of
fundamental reform, and how it would expect to rate with the earlier developed
tax criteria. Slemrod and Bakija raise the issue of transition from one system
to another and describe the likely winners and losers. They also discuss
consumption tax plans such as the retail sales tax, Value Added Tax (VAT), and
Personal Consumption Tax. They do a very good job of discussing how VAT is
implemented in different nations. Lastly, they examine the income tax for
possible improvements and discuss hybrid systems
combining both income and consumption taxes. Chapter nine gives a checklist
for the concerned taxpayer interested in deciphering how he or she would fare
under each system.
This book is accessible to the general public and it offers a starting point
for those interested in the current debate over income tax reform in the United
States. For the tax historian,
it is useful as a collection of concepts related to the development of the
United States income tax system, and to a lesser degree, the
various alternatives to the income tax. Due to the scope of the book it will
not be of much use to those well-versed in taxation or for an in-depth
historical perspective. It does accomplish what the book’s stated goal is,
to be A Citizen’s Guide to the Great Debate Over Tax Reform. I enjoyed
|Subject(s):||Economic Planning and Policy|
|Geographic Area(s):||North America|
|Time Period(s):||General or Comparative|