Paper Abstract
94. Robin Morgan, Are There Differences Between Wealth and Income Taxation? Yes, but Less Than We Think, 06/2022.
Abstract: The debate between wealth and capital income taxation has raged for the past decade, recently growing in intensity at both the academic and political level. Rather than engage directly in that debate, this Article asks more preliminary but fundamental questions regarding the extent of differences and similarities between wealth and income taxes. It is found that wealth and income taxation are almost completely equivalent such that both can be structured in ways that will put the government and taxpayers in the same after-tax position. The only difference comes in a slight increase in demand for risky assets under an income tax as compared to an otherwise equivalent wealth tax. Both taxes can thus be used to impose the same tax burden and achieve the same level of fairness and redistribution, however those terms may be defined. This has direct implications for everything from theoretical definitions of wealth, to optimal taxation, to the very constitutionality of a wealth tax. The question of wealth versus income taxation is argued to have been used as a smokescreen for another debate of paramount importance, that between accrual and realization-based taxation. Although wealth taxes have served as the quintessential accrual-based tax and the income tax as an example of realization, both can be structured as either equivalent accrual-based taxes, or equivalent realization-based taxes. The meaningful discussion is not between wealth or income taxation, but between accrual and realization.