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Southern Methodist University Law Review


one percent, tax reform, tax justice, return free tax system


This article describes the historical shift from consumption taxation at the federal level to income taxation with the enactment of the 16th amendment (the intent of which was chiefly to tax the capital income of the wealthy) and the incremental shifts since then back toward consumption taxation (which frees capital from tax) through expansion of both the payroll taxes as well as the consumption tax features of our current hybrid income/consumption tax that target the middle class.

It then addresses the issue of whether we ought to expand consumption tax treatment to the very wealthy by reviewing two recently published books on fundamental tax reform, Edward J. McCaffery's Fair Not Flat and Michael J. Graetz's The Decline (and Fall?) of the Income Tax. One of the author's chief concerns with McCaffery's proposal to replace the income/consumption tax (as well as the estate and gift tax) with a cash-flow consumption tax with graduated rates is the effect his proposal could have on the tax paid by the top one percent of wealth owners, which now owns nearly forty percent of the private wealth in the U.S.

The author believes that a significant shift in the tax burden away from the top one percent would likely occur under McCaffery's proposal—in return for speculative economic benefits for the country, in the view of many economists—which could do no more than accelerate the wealth concentration in the top one percent that has already reached record levels in recent years. Graetz proposes a two-tier tax system in which all individuals pay a VAT and those individuals earning above $75,000 to $100,000 also pay an income tax. The author believes that Graetz's proposal, which would remove 100 million taxpayers from having to file an annual return, is extremely important, but she would attempt to accomplish what Graetz is proposing within a single tax system rather than a two-tier system.