Tax Reform Paul McDaniel Style: The Repeal of the Grantor Trust Rules
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Description
One of the many profound contributions that Paul McDaniel made to tax policy discourse was his insistence on the need to maintain a razor sharp distinction between tax expenditure analysis on the one hand, and tax policy analysis on the other. While tax expenditure analysis may be policy analysis, it is not tax policy analysis. The failure to distinguish between the two forms of analysis, Paul argued, has hampered efforts at tax and spending reform. Paul was emphatic that tax expenditure provisions should be analyzed as government spending programs, and can be justified only if they stand up to the scrutiny of spending analysis: are they wise, effective and efficient subsidies. The term ‘‘tax reform’’ is reserved for changes in the structural components of the tax system, including the appropriate tax rates, taxable unit, and accounting rules. It is only in analyzing these structural provisions that the traditional tools of tax policy analysis, including concepts of horizontal and vertical equity, play a meaningful role. Paul described the concept of tax equity, horizontal and vertical, as follows: ‘‘In the absence of problems in the technical tax structure, taxpayers with the same amounts of income will incur the same economic tax, and taxpayers with higher incomes will incur progressively greater economic tax liabilities than lower income taxpayers.’’ Structural provisions that violate those principles should be the target of tax reform. Yet once the taxpayer’s economic tax is determined, offsetting reductions in the taxpayer’s actual tax bill caused by subsidies in the form of tax expenditures must be justified under spending principles. While questions of equity no doubt arise in constructing spending programs, the concept of tax equity is not helpful in analyzing whether the spending program instituted through the tax expenditure is a good one.
Source Publication
The Proper Tax Base: Structural Fairness From an International and Comparative Perspective—Essays in Honor of Paul McDaniel
Source Editors/Authors
Yariv Brauner, Martin James McMahon, Jr.
Publication Date
2012
Recommended Citation
Cunningham, Laura E. and Cunningham, Noël B., "Tax Reform Paul McDaniel Style: The Repeal of the Grantor Trust Rules" (2012). Faculty Chapters. 265.
https://gretchen.law.nyu.edu/fac-chapt/265
