Neil Buchanan (Sutherland School of Law, University College Dublin), “I’m Not a Distortion, You’re a Distortion!” (JOTWELL) (reviewing Rebecca Morrow (Wake Forest; Google Scholar), The Income Tax as a Market Correction, 77 U.C. L.J. ___ (2025)):
The fundamental problem with orthodox economic analysis of policy issues is the lack of a clear baseline. That is, standard economic arguments revolve around moving the world from its currently impure and benighted “inefficient” equilibrium back to its idyllic efficient state (known technically as Pareto efficiency). Yet, as I have discussed here, we do not and cannot know what that perfectly efficient state looks like – or even how we would know it when we achieved it. In turn, that means that we do not know whether any particular legal change or policy intervention will move us closer to or further away from the efficient state of the world. Indeed, we might already be in that supposedly ideal state, which would mean that any changes would move us into a suboptimal world.
Rebecca Morrow’s The Income Tax as a Market Correction uses the inherent unknowability about what is and is not efficient to offer a profound (and also somewhat cheeky) retort to the many economists who call the income tax inefficient. Professor Morrow is right that having an income tax could be more efficient than not having an income tax – because, again, anything is possible in a world without a known baseline – but she goes further and argues that the income tax in the United States probably is more efficient than the alternative. …
Professor Morrow shows her sophisticated understanding of economics and how orthodox economists do their work. Specifically, the standard move among economists is to find a market “imperfection” that a smart economist can correct with the right policy. The most well-known example of this is in environmental economics, where “market failure” results in too much pollution, making it possible to argue that reducing pollution is a move in the right (that is, efficient) direction.
Using that style of argument, Professor Morrow identifies people’s risk aversion as the offending market failure and then explains why the income tax causes people to be willing to take greater risks. Her analysis in Section II, explaining why an income tax “un-distorts” (my word, not hers) the distortion caused by risk aversion, is especially strong. Her bottom line is that the income tax uniquely serves this counter-distortionary role. In short, she is able to make a very standard analytical move (without having to blow up the entire notion of efficiency, which is what I would do) and show that the standard economic case against the income tax is flawed.
This is the kind of deep, clever scholarship that turns the orthodoxy back on itself. It is also very well written. Professor Morrow’s work is an impressive contribution to the literature.
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