Edward Kleinbard (USC) presents The Sorry State of Capital Income Taxation at NYU today as part of its Colloquium Series on Tax Policy and Public Finance convened by Daniel Shaviro (NYU):

This paper considers the sorry state of capital income taxation today, and why matters will get worse tomorrow. It does so as background for a larger project that calls for the fundamental revision (but not abandonment) of capital income taxation. This paper tries simply to demonstrate that the larger project’s proposed reimplementation of capital income taxation addresses the particular problems identified here.

In thinking about the taxation of capital income, there are only a handful of important questions. Each in effect is a gating issue for the next:

• Why tax capital income at all?
• How can we accurately measure capital income?
• At what rate(s) should capital income be taxed?
• Assuming that capital and labor incomes are taxed at different rates, how do we distinguish the two?

This paper focuses primarily on the second of these points. It assumes the proverbial can opener – more particularly, the existence of capital income taxation. This of course is a controversial assumption, and is adopted here only for the sake of keeping this paper a manageable size. In fact, there are some plausible economic efficiency arguments for retaining a tax on capital income, and powerful political economy reasons to do so, but they are developed elsewhere.

The paper further assumes that capital income should be taxed consistently – that is, that capital income of the same species, however defined (e.g., normal returns, on the one hand, or economic rents, on the other) should be taxed at the same rate, regardless of the legal form in which that income is earned. This second assumption should less controversial.

Update: Dan Shaviro blogs the workshop here.