This Article examines ability taxation, which is a tax on a person’s earning ability or potential earnings, rather than earned income. Despite this regime’s longstanding favor as a theoretical ideal for fair and efficient taxation among public finance economists, certain political philosophers, and tax law scholars, insufficient effort has been made to provide an analysis of what ‘potential earnings’ means. This Article explores competing understandings of this notion, and situates them within a…
Read moreThis Article examines ability taxation, which is a tax on a person’s earning ability or potential earnings, rather than earned income. Despite this regime’s longstanding favor as a theoretical ideal for fair and efficient taxation among public finance economists, certain political philosophers, and tax law scholars, insufficient effort has been made to provide an analysis of what ‘potential earnings’ means. This Article explores competing understandings of this notion, and situates them within a multipart taxonomy. In so doing, it unearths a tension at the core of the ability tax program involving a fundamental misalignment between the metaphysics (or correct conceptual analysis) of potential earnings and the economics of its taxation. It concludes that once we correctly understand its requirements, we should reject ability taxation as the first-best normative ideal it has been held out to be on the grounds that it is overly burdensome and unfair to certain individuals.
