Document Type

Article

Comments

59(2) SMU Law Review 835 (2006) (forthcoming)

Abstract

Marginal rates are frequently analyzed based solely on taxes, without regard to benefit phase-outs that have exactly the same incentive and distributional effects as increasing positive taxes. This myopia reflects the notion, rooted in our current fiscal language, that “taxes” and “spending” are fundamentally different. In fact, however, the difference is purely one of labeling.

Among the ill consequences of this confusion between substance and labels is the political unfeasibility of demogrant or negative income tax proposals. These proposals often are criticized for seemingly providing universal and unconditional cash grants. In fact, however, cash grants can be just as conditional or selective as benefits that are labeled as “welfare.” Clearer thinking about these matters would expand the realm of politically feasible policy choices, and make excessively high marginal tax rates on people who are escaping poverty easier to avoid.

Date of Authorship for this Version

July 2006