Abstract

This brief commentary on David Weisbach’s essay (available on ssrn at http://ssrn.com/abstract=911604) first identifies Weisbach’s contribution as stating an Equivalence Theorem: putting aside matters affecting the taxation of the pure riskless rate of return, any method of implementing an income tax has an equivalent consumption tax implementation method, and vice versa. Stated thus, the Theorem, like the Coase Theorem, follows from definitions: if the only real difference between an income tax and a consumption tax is the taxation of the pure, riskless rate of return, then there are no other differences between income and consumption taxes. But this is not to say that Wesibach’s formulation of the idea is not interesting and important, like Coase’s theorem. Weisbach illustrates the Equivalence Theorem with four major areas of implementation detail: cash method versus basis accounting; individual versus business level remission of taxes; open versus closed transactional accounting systems; and international coordination mechanisms. After reviewing this briefly, the Commentary goes on to situate the Equivalence Theorem in a wider intellectual history of the analytics of tax, noting four “waves” in the understanding of broad-based income versus consumption taxes, in which David Bradford played a central role; to comment on the normative implications of the analytics of tax; and, finally, to note what is, and what is not, at stake in understanding equivalent “implantation methods.” The Commentary concludes by asking for more work in the spirit and manner of both Davids, Weisbach and Bradford.

Disciplines

Tax Law

Date of this Version

July 2006

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