APPLYING SUSTAINABILITY TO TAX.

• Author: Nozemack, Karie Davis

INTRODUCTION 503 I. PRIOR APPROACHES TO TAX POLICY ANALYSIS 508 II. WHY USE A SUSTAINABILITY APPROACH? 511 III. SUSTAINABLE TAXATION 517 CONCLUSION 521 INTRODUCTION

Industrialization has fostered global wealth and innovation, (1) but improvements to GDP and prosperity have come at a price. (2) There has been tacit public acknowledgement of industrialization's detrimental environmental effects since the 1972 United Nations Conference on the Human Environment. (3) Only recently however, has the public expressed a willingness to address the complex planet- and society-altering effects of industrialization. (4)

Public and academic discourse have coalesced around sustainability as an appropriate framework to address industrialization's effects. (5)

Sustainability work has moved beyond eco- conservation; sustainability has been applied to issues in higher education, (6) corporate governance, (7) economics, (8) finance, (9) and accounting, (10) among others. To date, however, too little work has applied sustainability to taxation. (11) This gap in the literature is curious given how tax intersects so universally with social and economic issues. We opine that the dearth of sustainable tax work lies with traditional approaches to tax policy analysis. (12)

Much tax policy analysis follows one of two paths. Some scholars and industry groups, like the Association of International Certified Professional Accountants (AICPA), (13) build upon Adam Smith's four canons. (14) More recent work builds upon optimal tax theory and seeks to maximize social welfare. (15) Both approaches contribute to a rich tax policy literature that expands our understanding of tax systems, but work based in either approach suffers from the same deficiency. (16) For too long, tax policy literature has skirted meaningful normative analysis. (17) It avoids contemplating challenging normative questions and interrogating underlying assumptions. (18) The world faces the simultaneously marvelous and pernicious effects of industrialization and rapid economic expansion, but current analytical approaches to tax have not adequately considered the role that tax plays in contributing to and can play in ameliorating the national and global crises wrought by industrialization. (19)

This Article introduces sustainability analysis for tax policy. Sustainability is conceived to remedy problems arising from the effects of industrialization, (20) and a sustainable tax framework fulfills a lacuna in tax policy analysis. (21) Sustainable taxation will not supplant prior tax policy work. (22) Rather, it is sufficiently robust and interdisciplinary to incorporate prior approaches. (23) Further, sustainability compels examination of fundamental, normative questions. (24) To advance the literature, this Article provides the contours of a sustainable taxation framework with first and second order questions. A sustainability tax analysis initiates by asking "What kind of society do we want to sustain?" (25) Subsumed in this primary question are numerous secondary questions: "How can tax policy support [the quality of life, social justice and cohesion, diversity, democratic rights, broad participation, and social capital and individual capabilities] that we wish to sustain?" (26) Scholars also simultaneously consider: "What resources will be available for future generations?"--within the framework. (27)

Sustainable taxation begins with normative analysis. (28) It also offers a unique and valuable path for interdisciplinary collaboration, long-term solutions, and adaption to an ever-evolving technological society. (29) Once a normative foundation is established, long-standing (and hopefully future) approaches to tax analysis can provide guidance in forming tax policies that will support a sustainable societal future.

1. PRIOR APPROACHES TO TAX POLICY ANALYSIS

   Modern tax policy analysis originated with Adam Smith in 1776 during the first industrial revolution, (30) and 250 years later many scholars continue to apply his principles. (31) Smith presented an analytical cannon for tax in The Wealth of Nations. (32) A well-designed tax, from Smith's perspective, is one that is as equitable, certain, convenient, and efficient as possible. (33) Smith's theories have attracted tax scholars for centuries. (34) As a philosopher and economist, (35) Smith provided the groundwork for modern capitalism (36) but also incorporated social justice goals. (37) Unlike his contemporaries, Smith expressly discussed the role of taxes in the economy and society as well as the relative merits of alternative systems. (38)

   Smith's four canons continue to be the genesis for various tax law analysis today (39) and particularly for analysis by tax practitioners. In the Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax Proposals, the AICPA added eight principles to Smith's original four, including information security, simplicity, neutrality, economic growth and efficiency, transparency and visibility, minimum tax gap, accountability to taxpayers, and appropriate government revenues. (40) Undoubtedly, these additional principles provide for a more hearty tax analysis but, like Smith's work, are still incomplete. These principles do not contemplate the purpose of tax or the relationship of economic progress to social progress in tax policy and are insufficiently integrative. Smith's principles, the AICPA framework, and similar work "relate primarily to the practice of taxation rather than the principles that underpin it." (41) Moreover, these principles are most often applied as a multi-prong analysis to each new provision or proposal, ignoring the integrative effect of tax policy.

   Other scholars often use an economics-based approach to tax law analysis. Considerable work has been published applying optimal tax theory, (42) which designs tax systems that maximize individual utilities. (43) Optimal tax models have been evolving since Scottish economist James Mirrlees published his seminal work in 1971, (44) but current models still struggle to reflect realistic human preferences and decisionmaking. (45) More importantly however, these models cannot answer fundamental, normative questions. (46) Even scholars who recognize the limitations of optimal tax theory continue to use it as a basis for their reasoning. (47) While work building on optimal tax theory has begun to integrate knowledge from other disciplines, an analysis that relies solely on optimal tax theory is as incomplete as an analysis that relies solely on Smith's canons.

   Some tax analysis has embraced foundational, normative questions. One example is Liam Murphy and Thomas Nagel's The Myth of Ownership: Taxes and Justice, which examines tax within its broader relationship to legal, moral, and political theory. (48) Murphy and Nagel noted that "certain concepts have been developed specifically for application to the evaluation of tax policy: vertical equity, horizontal equity, the benefit principle, equal sacrifice, ability to pay" and then showed how these concepts fail to "adequately capture the considerations that ought to enter into the normative assessment of tax policy." (49) Murphy and Nagel provided a model for an excellent entry point for tax analysis within contemporary conversations, but little subsequent work applying their approach to tax law analysis has ensued.

   Each approach--Smithian, optimal tax theory, and interdisciplinary normative work--offers much to tax analysis, but none alone is sufficient. Smith's principles and optimal tax theory skirt questions of intergenerational equity and social and economic balancing. Neither Smith's principles nor optimal tax theory place tax policy within broader philosophical frameworks; these approaches--and those that build on them--permit tax to be analytically separate from everything that is not tax. To help remedy the social, environmental, ethical, and legal effects of industrialization, a different approach to tax analysis is required.

2. WHY USE A SUSTAINABILITY APPROACH?

   We propose a sustainability approach to tax analysis because industrialization and the economic growth it propagated is the catalyst for the emerging crisis in sustainability. (50) A sustainability approach will not abandon previously used methods of tax analysis. (51) Rather, it is broad enough to incorporate the contributions of other approaches. (52) However, sustainability demands examining foundational, normative questions and only then permits ensuing questions that traditional approaches to tax analysis can help answer. Sustainability also contemplates a longer time horizon for solutions. Sustainability itself continually evolves, and this evolution better accommodates often unknowable changes in technology, society, and values. These attributes of sustainability analysis are absent from prior approaches to tax policy analysis. We propose using sustainability because, as an approach, it fulfills long-standing gaps in tax analyses. It is integrative, future-focused, and adaptive to ever-evolving technology and society.

   Sustainability asks whether a system "meets the needs of the present without compromising the ability of future generations to meet their own needs." (53) This question incorporates both normative and analytical analyses, (54) which have too rarely been paired in modern tax analysis. Sustainability does not merely ask how we make the status quo incrementally better. (55) To create a sustainable society, we must first determine "what type of society we want to sustain." (56)

   Sustainability is most often associated with environmental protection, but sustainability is not solely concerned with eco-conservation. (57) Environmental protection serves as only one of the three principles--or pillars--of sustainability. (58) Social development--sometimes noted as social equity--and economic development join environmental protection to form the widely accepted three pillars of...