Income Taxation: A Structure Built on Sand
Documentos, de Trabajo Editados por el Instituto de Estudios Fiscales, No. 14/05, pp. 1-18, 2005
21 Pages Posted: 14 Aug 2010
There are 2 versions of this paper
Income Taxation: A Structure Built on Sand
Date Written: 2005
Abstract
There are several fundamental problems with the judicial concept of income, that is, the concept of income that the courts employ for tax purposes. First, the judicial concept sees income as a flow, rather than as a gain. Secondly, as a consequence, it taxes some apparent flows that do not entail gains. Thirdly, it omits gains that we call capital gains. Fourthly, it relies on legal transactions rather than underlying economic movements. The fictions of income tax law are of a different character from other legal fictions in that the classic legal fiction entails pretence, but taxation fictions entail duplicity. These factors lead to ectopia, that is, a dislocation between tax law and the economic transactions to which it relates.
The ectopia of tax law explains why that law is unduly complex, why it is difficult, if not impossible, to simplify tax codes, and how general anti-avoidance laws are justifiable. Another consequence of ectopia is that people are forever trying to reform and improve income tax. The tax value method was one such attempt to respond to ectopia.
Ross Parsons predicted the demise of income tax because of the dislocation of tax law from the economic substance its addresses. Nevertheless, it appears that income tax will be with us indefinitely, despite it’s being terribly flawed. The result is a need to employ a patchwork approach in addressing shortcomings in the law.
Keywords: Income Tax, Ectopia, Legal Fictions, Demise of Income Tax, Ross Parsons
JEL Classification: K34
Suggested Citation: Suggested Citation