Social Welfare and the Rate Structure: A New Look At Progressive Taxation

Abstract

The progressive rate structure of the federal income tax has always been controversial.In this Article, Professors Bankman and Griffith explore the moral underpinnings and economic effects of the progressive income tax.Observing that all rate structures must be premised upon, and measured by, a theory of distributive justice, they first consider possible normative bases for a tax structure.They select as the normative basis for their analysis welfarist theories of distributive justice, which judge the tax structure on the basis of its effect on societal welfare.They next reexamine the traditional economic arguments against progressive taxation.They critically analyze both the labor-related efficiency costs ofprogressive taxation and the traditional arguments that progressivity imposes significant administrative costs, promotes the misallocation of capital, and increases tax evasion.Finally, they describe an optimal tax model for calculating the most desirable tax rate, balancing the costs ofprogressivity against possible gains from redistribution.The model proposed by Bankman and Griffith produces two results of particular importance.First, under most welfarist theories, the optimal tax rate is progressive, but not confiscatory.Second, a progressive tax is best implemented not by graduated or rising marginal