Causation, Science and Taxation

Abstract

A surprising feature of legal and economic discourse on taxation is the rare mention of causation. Causation is typically only discussed in respect of tort law and criminal law and not in other areas such as tax law. This seems to be because much of the analysis of taxation is a type of applied moral philosophy where the idea is to justify a preferred tax policy and not to discuss how a tax policy would cause a desirable outcome. Scientific inquiry is concerned however with identifying a theory of causation in respect of tax policy. For example, corporate tax cuts are often thought to cause economic growth. A scientific approach to taxation requires us to test this and other theories of taxation. This is necessary because science proceeds at least in part by the falsification or at times the augmentation of theories of causation. Hence, ideas about tax causation that seem to be wrong in the sense that an explanation of cause-and-effect seems to be subpar should be of special interest to tax scholars. Several of these are discussed here as follows: (i) the Laffer curve positing a negative relation between statutory tax rates and tax collections; (ii) the “small open economy” model of corporate tax incidence as passed entirely to labor; and (iii) the “trickle-down” economics or deadweight loss of income taxation however posited without any corresponding deadweight loss from wage taxation. The combination of these ideas forms the basis for much of modern tax policy design. However, the thesis of this paper is that these theses are subpar and that tax clinicians (such as, tax lawyers and accountants) may be able to infer causation in the tax context as a more advanced type of scientific inquiry. The practical experience of practitioners amounts to a clinical form of scientific knowledge about taxation.