THE INCOME TAX AND THE BURDEN OF PERFECTION

The modern federal income tax and the Northwestern University Law Review have something rather peculiar in common. Both suffered false starts in the late nineteenth century, only to shortly thereafter be reconstituted and to emerge as significant legal institutions in the early twentieth century, and to continue as significant institutions on into the twenty-first. Northwestern University School of Law's first law journal-then called the Northwestern Law Review-was published from 1893 through 1896 and had only a slightly longer life than the first modern income tax. The income tax was enacted in 1894,' and struck down as unconstitutional in 1895, having produced no revenue.2 A law review-then called the Illinois Law Review-reemerged at Northwestern in 1906 and has continued since, although not always under the same name or the same type of management.3 The income tax reemerged on the political agenda after a similar ten-year interval, but took a bit longer to finally become established, since it required a constitutional amendment to ensure its permanency.4 The income tax, like the Northwestern University Law Review, was born in an era in which optimism about law and legal institutions prevailed. In the case of the income tax, support came both from those who held firm to nineteenth-century notions about the nature of law and legal institutions, and from those who saw promise in new and expanded roles for law and an administrative state through which it would operate. This curious mix-of faith in traditional legal institutions, including the capacity of legislators and courts to work together in refining and implementing statutory law, and in the possibility of innovation in public policy implemented through those institutions-produced the income tax as we know it. The income tax as implemented in the United States remains one of the more remarkable institutions created in that era. The current income tax is arguably the most effective revenue-raising mechanism ever created. In fiscal year 2004, it (and the payroll taxes that rely on its conceptual and compliance foundations5) resulted in receipts of more than 1.9 trillion dollars,6 constituting just over sixteen percent of GDP.7 The income tax and the many public policies that are implemented through it now dominate the national political agenda. Nevertheless, the income tax is at the moment-as it has been for much of its history-under serious challenge for its distortive burden on the economy, for its complexity, for its progressivity, and for its lack of progressivity.8 The President recently convened an advisory panel to suggest reforms. Although the President's charge to the panel included a direction that at least one proposal should "use the Federal income tax as the base for its recommended reforms,'" there are many in Congress and elsewhere who are willing to let us believe they would rather just kill it off. Again in the 109th Congress, as in several recent Congresses, there is legislation that would simply repeal the income tax.10 Why, given the persistent attacks against it, has the federal income tax proven to be such a remarkably durable institution? And why, if it has been so successful and so durable, does it always seem so vulnerable? Some of the reasons for the durability of the income tax are fairly obvious. The income tax, along with its companion payroll taxes, simply raises a lot of money with little pain, relative to other possible taxes. Pulling the plug on the most effective revenue-raising system in history-no matter what its flaws-would be a drastic act." This fact contributes both to its durability and to its current lack of popularity.12 It is an easy target of criticism, since it touches virtually the entire population, and almost always in an unpleasant, if not painful, way. Nobody likes to pay taxes. But since not paying taxes at all is rarely a viable long-term option, most of us settle for hoping that we are asked to pay our share, and no more than our share. …