Dimensions of Law in the Service of Order: Origins of the Federal Income Tax, 1861-1913.

Author:Bankman, Joseph

By Robert Stanley. New York: Oxford University Press. 1993. Pp. xiv, 331. $45.

The modern state allocates wealth through public law, direct expenditures, and administrative rulemaking. It is the power to tax, though, that offers the state its last and most promising means to affect the distribution of wealth. The state can reallocate wealth, not only through the tax rate structure, but also through tax incentives and disincentives that favor some sectors over others. In light of the pervasive distributional role of the tax law, one might expect that political theory would play an important role in tax scholarship. That, however, is not the case. Legal tax scholarship is generally written by former tax lawyers, aided by a handful of economists. Few legal tax scholars have advanced degrees or serious scholarly interests in history, political science, anthropology, or sociology. Consistent with their background and expertise, law professors who write on tax spend most of their time on two tasks. The first task is to provide intelligible descriptions of the increasingly complex tax law. The second task is to ferret out economically similar transactions that -- often for no good reason -- generate dissimilar tax consequences. An article written in the latter vein might point out that interest realized from money market accounts is fully taxed, while "interest in disguise" realized through other investments is taxed at low effective rates or escapes tax altogether.(1)

At some level, of course, all writing is political. Legal scholars who have served in government and worked on tax legislation sometimes write of the broad political forces that affect such legislation.(2) Legal scholars who point out inconsistencies in the tax law often recommend ways in which the law ought to be changed, and those recommendations are often based on norms, such as efficiency or the so-called called Haig-Simons definition of income, that are laden with political content. Few legal scholars, however, wish to spend time analyzing the political dimensions of those norms or addressing in other ways the politics of the income tax. The following play little or no role in legal scholarship: data on the before- and after-tax distribution of wealth or the fluidity of that distribution over the individual life cycle or across generations; the writings of Locke, Bentham, or more modern political theorists on the just distribution of wealth; and political, sociological, or anthropological studies of the attitudes of individuals toward the tax or expenditure side of government. Only recently has positive political theory, in the form of economics-influenced public choice theory, gained a serious foothold in legal tax scholarship.(3)

The present focus of legal scholarship is not necessarily bad. The tax law is enormously complicated, and inconsistencies within the law that are not brought to light can cost the fisc billions of dollars and distort behavior in ways that are undesirable under any political theory. Moreover, by focusing with increasing economic sophistication on the operation of the tax law, legal tax scholars are doing what they do best. One might therefore applaud a division of labor under which legal tax scholars confine themselves to the nuts and bolts of the system and leave it to those in the humanities and social sciences to provide insight into the larger political issues.

Unfortunately, the same complexity that keeps legal scholars tied up with the technical side of the tax law has discouraged other scholars from giving more than cursory attention to the tax system. In general, only economists have shown much interest in the politics of tax, and much of that interest has been evinced by the rather small group of economists who have served in government and worked on tax legislation.(4) Excluding the contributions of this group and a smattering of works produced by policy institutions such as the Brookings Institute it is perhaps fair to say that the politics of the income tax has been the subject of only one modem book-length study -- John F. Witte's The Politics and Development of the Federal Income Tax.(5) Witte provides in a single book much of what one might mean by the political study of the income tax. Witte reviews prescriptive theories of taxation, the changing public attitudes toward tax, the probable economic effect that income tax has on the distribution of wealth, and the politics leading up to major developments in the tax law.

Witte concludes -- contrary to the findings of more cynical public choice theorists -- that our tax system reflects popular will, or at least popular will as shaped by the pressures of pluralist politics. According to Witte, legislative deviations from a neutral income tax (tax expenditures) seldom inure to narrowly defined, wealthy special interest groups. Instead, "in terms of revenue, the tax expenditures that count are those with widely endorsed and solid justifications, long histories, and large potential constituencies," such as the nontaxation of employer-provided health insurance.(6) As far as the effects of the tax law on the distribution of wealth, Witte finds that the law is about as progressive as public opinion polls show the voters desire.(7)

Given the paucity of writing in this area, one welcomes the addition of a new, full-length book on the politics of the income tax: Robert Stanley's Dimensions of Law in the Service of Order: Origins of the Federal Income Tax, 1861-1913,(8)...

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