Distributing the tax burden in postwar America: Between empirical estimates and normative principles
In this paper, we examine the emergence of measures of the U.S. tax burden in the 1950s. Much of the effort can be attributed to a desire to quantify the fairness of a tax system that had undergone a series of radical changes in response to financing demands of the Second World War and Korean War. While broad socio-economic and cultural conditions facilitated preferences for progressivity in the U.S. tax system, the objective and stylized facts used in support were engineered by Richard A. Musgrave and a small group of Washington-affiliated technocrats. This intersection of demands for fairness and for macroeconomic stability found their mature articulation in Musgrave’s tripartite functions of government: allocation, stabilization, and redistribution. To understand this story, we first review the technical and economic issues associated with quantifying the tax burden, exploring how theoretical debates about incidence were entangled with issues of measurement. Next, we examine Musgrave’s study, exploring how its dissemination was no less complicated than its development. Last, we consider Musgrave’s efforts to persuade policy-makers and economists to his conclusions. Over the years the answer to “who pays the taxes?” remained the same: excepting the very poorest and very richest, the distribution of the tax burden was roughly proportional to income. Despite a strong social consensus for progressivity, the empirical evidence was that the statutory incidence of the federal tax code did not translate into a socially equitable tax system. This stylized fact lent support to a new tax philosophy that emphasized a concern for equity.
Area: Eshet Conference
Keywords: Tax Incidence, Fairness, Distribution, Tax Burden, Richard A. Musgrave
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