Tax and disability: ability to pay and the taxation of difference.

Author:Seto, Theodore P.
 
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Although people with disabilities make up some 20% of the American population, scholars have largely ignored U.S. tax provisions of particular relevance to them. This Article undertakes the first such systematic study. In the process, it reexamines disability theory, tax theory, and the mechanical structure of the individual income tax system. Disability theory has changed dramatically over the past century, to the point that many tax rules important to people with disabilities are no longer justified by modern disability theory. Standard tax theory turns out to be inadequate to deal with the problems of people with disabilities because, consistent with its utilitarian origins, standard tax policy analysis generally assumes that taxpayers are identical except with respect to income; as a result, it lacks the capacity to deal with other individual differences in ability to pay. The failure of tax theory to deal adequately with ability to pay, in turn, has placed serious strains on the mechanical structure of the individual income tax system as a whole, which has become increasingly incoherent. This Article analyzes existing tax provisions of particular relevance to people with disabilities using an ability-to-pay approach to individual income taxation and a human variation paradigm of disability rights, justifying or reframing some provisions and recommending repeal of others. Ultimately, the Article suggests, if the individual income tax system as a whole were to be reframed in terms of individual taxpayers' ability to pay, the mechanical complexity of that system could be rationalized and significantly reduced.

INTRODUCTION I. AN INTRODUCTION TO DISABILITY LAW AND THEORY: STRUGGLING TO FIND A PARADIGM A. The Affliction Paradigm B. The Medical/Charity Paradigm C. The Civil Rights Paradigm D. Emergence of a Human Variation Paradigm II. AN INTRODUCTION TO THE FEDERAL INCOME TAXATION OF INDIVIDUALS: FROM THE THEORETICALLY ELEGANT TO THE INCOHERENT A. Comprehensive Tax Base Theory B. Theories of Progressive Taxation C. Mechanical Structure of the Individual Income Tax D. Reframing the Income Tax, in Part, as a Tax on Ability To Pay III. TAX PROVISIONS OF PARTICULAR RELEVANCE TO PEOPLE WITH DISABILITIES A. Provisions Consistent with the Medical/Charitable Model of Disability B. Provisions Consistent with the Civil Rights Model of Disability C. Provisions Consistent with the Human Variation Model of Disability IV. PROPOSALS FOR CHANGE A. First-Best: Proposals for the Retention, Amendment, or Repeal of Tax Provisions of Particular Relevance to People with Disabilities Within the Context of an Ability-to-Pay Income Tax B. Second-Best: Proposals for the Retention, Amendment, or Repeal of Tax Provisions of Particular Relevance to People with Disabilities Within the Context of the Current Income Tax CONCLUSION INTRODUCTION

The Census Bureau estimates that at the end of 1994, approximately 54 million Americans (over 20% of the U.S. population (1)) had some type of disability; 26 million, a severe disability. (2) Since that time, the U.S. population has both grown and aged; (3) the number of people with disabilities is therefore probably larger today. (4) The Internal Revenue Code contains numerous discrete and largely uncoordinated provisions dealing with or of particular relevance to people with disabilities. Yet so far as we have been able to ascertain, no serious academic analysis of the policy issues underlying the U.S. taxation of people with disabilities or of those who interact most closely with them has ever been published. (5) Disability and tax scholars, each largely ignorant of the others' specialties, appear for the most part to have avoided the subject. This is regrettable. Tax rules of particular relevance to people with disabilities are too important for disability specialists to ignore in assessing federal disability policy. Conversely, the problems of people with disabilities raise issues that go to the heart of income tax theory and policy.

When we began writing this Article, our intention was simply to introduce U.S. income tax law and policy to disability specialists and disability law and policy to tax specialists. As we struggled to explain the consequences of the relevant tax provisions, however, we realized that the incoherence of those provisions reflected underlying difficulties both in tax and disability theory and in the mechanical structure of the income tax system as a whole. The final incarnation of this Article, therefore, explores both tax and disability theory and the mechanical structure of the tax system at greater length than our topic might seem to warrant. Such an extended exploration is necessary, however, both to understand the problems involved and to provide support for our policy proposals, the most far-reaching of which involve a fairly radical simplification of the structure of the individual income tax system itself.

Part I offers an overview of disability law and theory. Disability theory has changed markedly over the past century. The early 1900s saw the replacement of an affliction paradigm, in which disability was viewed as a punishment or test imposed by God, with a medical/charity paradigm, in which people with disabilities came to be viewed instead as appropriate objects of pity and philanthropy. The result was the enactment of a wide variety of special programs to help Americans with disabilities. The second half of the twentieth century, in turn, witnessed rejection of this medical/charity paradigm, viewed by the disability rights community as demeaning, in favor of a more militant civil rights model, in which people with disabilities claimed a fight to equal treatment. This time, the result was the enactment of extensive disability rights legislation, culminating in the Americans with Disabilities Act of 1990. Disability theorists then began to realize that the equality model they were using was inconsistent with many of the assistance programs they had won on the basis of the older medical/charity paradigm--programs still important to Americans with disabilities. Recent years have therefore seen the development of a new "human variation" paradigm that attempts to reconcile the two. This new paradigm asserts that society should be structured affirmatively to take differences into account, with the goal of allowing equal participation by all, despite those differences, to the greatest extent possible.

Part II turns to tax. To understand tax rules of particular relevance to people with disabilities, one must first understand the theoretical and mechanical underpinnings of the system as a whole. That system, it will be seen, is both theoretically and mechanically incoherent in significant ways. The most widely accepted theory of the income tax base, known as comprehensive tax base theory, focuses on the correct measurement of income, often to the exclusion of other goals, and is distinct from and uncoordinated with the most widely accepted theory of graduated tax rates, which holds that the purpose of progressivity is utilitarian redistribution. As a result, standard tax theory largely ignores differences--other than differences in "income"--in the ability of taxpayers to pay taxes. This, in turn, seriously limits its capacity to model popular moral intuitions about fair taxation. The mechanical structure of the system, caught between theory and moral intuition, has in turn become profoundly stressed--to the point that today many are ready to scrap the system altogether.

At the end of Part II, we suggest that ability to pay be revived as an analytic tool. We believe that a non-utilitarian ability-to-pay theory fits and justifies significant portions of existing law, offers a coordinated explanation of both base and rates, and is consistent with popular notions of tax fairness. In particular, such a theory explains existing tax provisions of particular relevance to people with disabilities far better than standard tax theory does. It may also permit significant simplification of the conceptual--and therefore also the mechanical--structure of the individual income tax system as a whole.

Part III then explores specific tax provisions of particular relevance to people with disabilities within this larger theoretical context. Subpart A reviews provisions that had their origin in the medical/charity paradigm rejected by the disability rights community (and apparently by Congress) some thirty or forty years ago as paternalistic and subordinating. We reframe most of those provisions in a manner consistent with both the human variation paradigm of disability and a non-utilitarian ability-to-pay theory of individual income taxation. Subpart B explores tax rules grounded in the civil-rights paradigm. Finally, Subpart C explores a series of apparently random and as-yet uncoordinated developments most persuasively explained by reference to the human variation paradigm and ability to pay. Most importantly, we note a recent major expansion in the scope of the medical expense deduction, largely unheralded by tax scholars, consistent with those theories and difficult to explain on any other basis. Part IV then summarizes our proposals for change, both first-best and second-best.

  1. AN INTRODUCTION TO DISABILITY LAW AND THEORY: STRUGGLING TO FIND A PARADIGM

    Whether existing U.S. income tax provisions of particular relevance to people with disabilities make sense depends on what those provisions are supposed to accomplish. Tax policy regarding people with disabilities should, of course, be consistent with overall federal disability policy. Unfortunately, there is as yet no such coherent policy. A civil fights paradigm has dominated recent congressional action with regard to disability issues. That paradigm, however, does not explain important parts of disability law grounded in an earlier medical/charity view of disability. A new human variation theory, recently proposed...

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