Equity vs. Efficiency and the U.S. Tax System in Historical Perspective

This chapter in TAX JUSTICE: THE ONGOING DEBATE examines tax justice in the American political tradition, focusing on tax policy and politics since World War II. The postwar period witnessed the decline of vertical equity as a serious topic of study among tax experts, especially economists. Beginning in the 1950s and accelerating in the 1970s, economists turned their attention away from vertical equity and toward efficiency and economic growth. To the extent economists considered questions of tax equity, they examined how deviations from horizontal equity influenced efficiency and growth, rather than how degrees of vertical equity effected prevailing norms of social and economic justice. The turn away from progressive equity -- in combination with a sustained period of stagnant economic growth, inflation, and public cynicism toward government -- prompted the American public to support tax policies that emphasized efficiency rather than equity. This environment allowed tax-cutters to push through reforms that excluded equity considerations altogether, and it gave credence to the supply-side notion that taxes should be set with the primary purpose of minimizing distortions. The chapter concludes by arguing that the abandonment of progressive tax equity as a policymaking construct has left tax experts out of touch with the American public, which continues to demonstrate a keen sensitivity to questions of fairness, justice, and progressivity. At a time of acute income and wealth inequalities -- the social ills that historically have motivated considerations of redistributive taxation in the United States -- we would do well to reconsider tax justice and its policymaking implications