A "Comprehensive Tax Base" as a Goal of Income Tax Reform

r OF TH UNITED STATES 394 (1966), many of them providing indirect rather than direct benefits to individuals and business firms. Cf. R. TITmuss, ESSAYS ON "THE WELFARE STATE" 44 (1959), arguing that state intervention in the economy in the interest of social policy did not commence in Britain with the "welfare state" of 1948, but with the introduction of progressive taxation in x9o7. 0 See MEAsURIN BENEFITS Or GOVERNMENT INVESTMENTS (R. Dorfman ed. 1965), which assesses the difficulties of measuring the social benefits from some public programs; to allocate these benefits, when measured, to individual taxpayers would compound the difficulties, to put the matter mildly. For an attempted allocation to various income classes see Gillespie, Effect of Public Expenditures on the Distribution of Income, in EssAYs IN FISCAL FEDERALISM 122 (R. Musgrave ed. 1965) ; see also Conrad, Redistribution Through Government Budgets in the United States, 595o, in INCoME REDISTRIBUTION AND SOCIAL PoLICY 178 (A. Peacock ed. 1954); Adler, The Fiscal System, The Distribution of Income, and Public Welfare, in FISCAL PoLICIes AND THE AMERICAN ECONOMY 359 (K. Poole ed. i95i). [Vol. 8o:925 HeinOnline -80 Harv. L. Rev. 936 1966-1967 A COMPREHENSIVE TAX BASE unreasonable; but it would require an admission that the aim of "taxing all income alike" and extirpating all "preferences" had been compromised. And once this is acknowledged, it is only a short step to the conclusion that public policy is not necessarily served by a single-minded effort to tax all grants that can be measured, and that it might be better to decide, program by program, which should be taxed and which should be exempt. To take just three examples, the exclusions granted by existing law to combat pay, unemployment compensation, and prizes for notable public achievement may reflect an intuitive sense of fairness or public pride. Assuming the irrationality of this feeling, what is gained by including these items in a tax base that will inevitably exclude a host of noncash benefits under public programs? For a fully committed enemy of "preferences," governmental benefits belong in the CTB even if the recipient must pass a means test to qualify; thus, the exclusion allowed by existing law for public assistance is a hidden subsidy to local welfare programs, and it creates geographical disparities since it is worth more to the residents of a city that is generous in its welfare allowances or lenient in disregarding outside earnings than to those whose city is more strict in these respects. Pechman, for example, would include such payments in the tax base, relying on the personal exemptions (raised above the existing level, if necessary) and on increases in the welfare payments themselves to prevent the income tax from encroaching on the taxpayer's ability to feed, clothe, and house himself.21 Even if every welfare recipient received a federal subvention precisely equal to the tax burden resulting from including his welfare payments in his gross income, I presume that this reform would be viewed as an improvement over existing law by a thoroughgoing enemy of "preferences" because it would bring the federal grant into the open and compel it to pass through the budgetary process. Some advocates of the CTB may falter at this point,22 opening themselves to the charge of being "soft on preferences"; but even they, presumably, would favor including welfare payments in gross income if, as with social security payments, the recipient is not subjected to a means test. If so, they 21 Pechman, Erosion of the Individual Income Tax, io NAT'L TAX J. 1, 12-14 (1957). 22 L. Shere, Federal Tax Revision To Promote Economic Growth and Stability xo (mimeo 1956), reprinted, Hearings on r957 Economic Report of the President Before the Joint Economic Committee, 85th Cong., ist Sess. 424 (i957), offers a list of objectionable exclusions that is identical with Pechman's, save for public assistance. 1967] HeinOnline -80 Harv. L. Rev. 937 1966-1967