Should We Adopt William Vickrey’s Cumulative Averaging Income Tax System? Progressivity and Simplicity in Tax Reform


This paper focuses on William Vickrey’s proposal to replace our current annual system of tax assessment with a new tax system that bases assessments on lifetime cumulative average income. After reviewing two key arguments in favor of the social goal of progressivity in taxation (a goal that Vickrey shared), I have examined whether adopting Vickrey’s cumulative averaging system would achieve a compelling change in the fairness of the tax system. While the current system undeniably creates a problem of horizontal inequity in that people with similar lifetime incomes can pay different tax rates based on the timing of those incomes, that inequity is ultimately not compelling enough to justify a significant restructuring of the U.S. tax system. The Vickrey system is, moreover, likely to be perceived as quite complicated by the public.

The poor, however, are uniquely burdened by the volatile nature of their income streams. I therefore endorse a plan recently offered by Lily Batchelder to allow low-income people to smooth their incomes in order to avoid a loss of tax benefits. This plan has the distinct advantage of not requiring a complete restructuring of the tax system, providing targeted relief to the neediest Americans through minimal legislative intervention.

At a minimum, though, the goal here has been to give Vickrey’s views on cumulative averaging another hearing. While my assessment has been a negative one, other voices should be heard on these issues. Even as we approach the tenth anniversary of his death, this and other proposals from Professor Vickrey deserve continued study and debate.


Taxation-Federal | Tax Law

Date of this Version

January 2006