Herwig J. Schlunk

An Argument for the Repeal of Tax Preferences for Educational Endowments

This essay examines the case for granting tax preferences to private university endowments. It looks first at the theoretical arguments that can be made to justify using tax preferences to enlist the help of private individuals in the pursuit of public goals, and finds that such arguments do not apply in the case of tax preferences for endowments. It then looks at the actual performance of private university endowments, asking whether their existence or their rapid growth has led to the provision of more higher education, or cheaper higher education, or better higher education. The unfortunate answer is “No.” In light of the foregoing, the essay recommends the repeal of tax preferences for private university endowments

A Lifetime Income Tax

Under current tax law, there can be considerable period-by-period divergence between a taxpayers after-tax income and her desired or actual consumption. This divergence will cause the taxpayer to borrow. One can view such borrowing either as being incurred to fund consumption, or as being incurred to fund the taxpayers income tax payments. If one takes the latter view, one can ask whether a good income tax law should force a taxpayer to borrow to pay her taxes. I answer the question in the negative, and propose a lifetime income tax that would eliminate the need for typical taxpayers to borrow to pay their income tax liabilities. Under such a regime, a typical taxpayer would reap an affirmative benefit over her lifetime, because she would be able to transfer borrowing from herself (a relatively inefficient borrower) to the government (a relatively efficient borrower).

A Minimalist Approach to Corporate Income Taxation

Under current law, the corporate income tax is unlikely to burden the returns generated by most productive assets. However, it is likely to burden the returns generated by at least some self-created intangible assets. Since self-created intangible assets are under-taxed relative to most other productive assets, this tax burden is entirely appropriate. Accordingly, Professor Schlunk argues that the focus of the corporate income tax should be sharpened: such tax should never be imposed on the returns generated by assets other than self-created intangible assets, and it should always be imposed on the returns generated by self-created intangible assets. This paper suggests a way in which this focus could be implemented.