Principles of Taxation in the United States

Theory, Policy, and Practice

Fabio Ambrosio

• Publisher: Routledge
• Year: 2020
• ISBN:
  9780429777257
• Edition: 1
• Topic: Business
• Subtopic: Taxation
• Index: Business

Taxation is a discipline that does not receive sufficient academic attention. It is typically viewed as a subset of law, accounting, public policy, economics, or finance. In this respect, most academic efforts in the field of taxation are shadowed by a mother discipline. There is currently an unprecedented need to approach tax pedagogy in a way that is independent of another discipline. This book caters to that real and unmet need in tax pedagogy.

One of the book's advantages is that it is not tied to a specific tax year and does not coddle the reader with volumes of time-sensitive information. In this book the tax year is never the focus, as the center stage is reserved for teaching the principles and skills necessary to independently find answers. The reader will learn to appreciate the complexity of the American tax system and will be endowed with the contextual understanding necessary to formulate educated opinions about how taxes work and, most importantly, why. Contrary to common belief, taxation in the United States has remained fairly stable for the last 100 years. This book uses the federal individual income tax as a vehicle to unveil the mechanics that make up the American tax system.

This book is essential reading for students taking a first course in taxation, at the undergraduate or graduate level, as part of programs in accounting, law, public administration, or business at large.

Part I

Conceptual foundations

Chapter 1

A historical perspective on tax policy

Philosophical notions of taxation

Taxation, unlike many other disciplines, impacts everyone. Everyone is a taxpayer somewhere, somehow. Everyone’s economic decisions are impacted by taxes. Consider how important the previous two statements are: you may have nothing in common with someone on the other side of the world, except for the fact that you are both taxpayers. It has been so throughout history.

Taxes have accompanied human history for thousands of years. Archeologists have found references to taxes and tax payments from Ancient Egypt and Mesopotamia dating back to 3,000 bce. Philosophers, historians, and scientists have expressed their views on taxation through the centuries, leaving us with many memorable quotes. Aristotle, the Greek philosopher who lived during the classical period in Ancient Greece, seemed to favor the idea of a progressive tax system where higher income should be taxed more. He wrote, “[i]t is fair that one who possesses much should pay a lot in taxes while one who has little should pay little” (Aristotle n.d.). Benjamin Franklin, one of the Founding Fathers of the United States and mastermind behind the independence war against England, in a 1798 letter expressing his support of the U.S. Constitution wrote that “[i]n this world nothing is certain but death and taxes.” Albert Einstein, the genius scientist who formulated the theory of relativity, told his accountant that “[t]he hardest thing in the world to understand is income taxes” (Mattersdorf 1963) (see Image 1.1). Sir Winston Churchill, prime minister of the United Kingdom from 1940 to 1945 and from 1951 to 1955, is attributed with having said that “[t]axes are an evil—a necessary evil, but still an evil, and the fewer we have of them the better” (Winston 1906).

Image 1.1Try to make out my theory and your income tax work will look simple!

Artist: Berryman, Clifford Kennedy, 1869–1949.

There has never been consensus, and there will never be consensus, on what taxes should do, how they should function, and whether they are good or bad. Understanding the philosophical struggle behind every tax is quintessential to appreciate how tax laws come about and how to properly interpret them, apply them, and criticize them. The most inspiring views on taxation often come from people who are not tax experts, such as Giacomo Casanova, an Italian adventurer who lived between 1725 and 1798. Casanova was a gifted writer, musician, historian, and master of deception. In his memoirs he recorded a memorable exchange he had on the subject of taxation with King Frederick the Great of Prussia (1712–1786). The exchange between Casanova and King Frederick (see Table 1.1) remains extraordinarily relevant today.

Table 1.1 Dialogue between Casanova and King Frederick the Great

Dialogue	Notes
King Frederick: “Give me your opinions on taxation.”	Notice that Casanova lists taxes on the basis of their purpose. In his mind, the ends of a tax justify the means. It was rather bold for him to define the royal tax as ruinous in front of a king!
Casanova: “There are three kinds of taxes, considered as to their effects. The first is ruinous, the second a necessary evil, and the third invariably beneficial … The ruinous impost is the royal tax, the necessary is the military, and the beneficial is the popular. … The royal tax, sire, is that which deplenishes the purses of the subject to fill the coffers of the king.”	Casanova understood that taxes, the economy, and commerce are tightly knit. More taxes tend to slow the economy, and this remains true today.
King Frederick: “And that kind of tax is always ruinous, you think.”
Casanova: “Always, sire; it prevents the circulation of money — the soul of commerce and the mainstay of the state.”
King Frederick: “But if ...

Table of contents

• Cover
• Half Title
• Endorsements
• Title Page
• Copyright Page
• Dedication
• Contents
• Detailed contents
• List of figures
• List of images
• List of tables
• About the author
• Foreword
• Preface
• Part I Conceptual foundations
• Part II The underpinnings of tax in the United States
• Part III The mechanics of an American individual income tax return
• Part IV Reflections on policy and practice
• Appendices
• Index