Tax Now or Tax Never: Political Optionality and the Case for Current-Assessment Tax Reform

62 Pages Posted: 10 Mar 2021

See all articles by David Gamage

David Gamage

Indiana University Maurer School of Law

John R. Brooks

Georgetown University Law Center

Date Written: 2021


The U.S. income tax is broken. Due to the realization doctrine and taxpayers’ consequent ability to defer taxation of gains, taxpayers can easily minimize or avoid the taxation of investment income, a failure that is amplified many times over when considering the ultra-wealthy. As a result, this small group of taxpayers commands an enormous share of national wealth yet pays paltry taxes relative to the economic income their wealth produces—a predicament that this Article condemns as being economically, politically, and socially harmful.

The realization doctrine is widely justified as an accommodation made for administrative convenience. Although there have been numerous proposals for current-assessment reforms that would abandon or limit the realization doctrine—including wealth tax reform proposals, accrual income tax reform proposals, and others—most tax policy scholars and commentators have disfavored these reform proposals in favor of reforms that would retain the realization doctrine in full. There are two primary reasons for this. First, current-assessment reforms face administrative challenges such as those related to asset valuation and liquidity. However, these challenges are surmountable, especially when it comes to reforms targeted at the ultra-wealthy. Indeed, recent scholarly work shows how a wealth tax reform can be designed so as to be superior at valuation as compared to the existing U.S. income tax.

This leaves us with the second primary reason for why wealth tax and other current-assessment reform proposals have been disfavored: prior scholarship has generally assumed that the problems created by the realization doctrine can be fixed on the back end by adjusting the rules that govern taxation at the time of realization. Specifically, most tax policy scholars have favored reform proposals—such as retrospective capital gains taxation, progressive consumption taxation, or more incremental reforms—that would retain the realization doctrine, but that would aim to impose taxes in a way that would erase or reduce the financial benefits of deferral.

However, this Article argues that these future-assessment approaches ignore a crucial additional problem of deferral—political optionality. If there is a many-year or longer gap between when either income is earned or wealth is accrued and when tax is assessed, then any number of things can happen in the interim to undermine the eventual assessment and collection of tax. This Article explains three sets of pressures that tend to erode future-assessment reforms over time—but that current-assessment reforms are relatively resistant to—(1) policy drift and the need for incremental bolstering of tax reforms, (2) the time value of options, and (3) federal budget rules and related political incentives.

As this Article demonstrates, both theory and historical experience reveal that future-assessment reforms are fragile and often fail—and that ultrawealthy taxpayers are well aware of this. In other words, accounting for the implications of political optionality, only current-assessment reforms are likely to succeed at meaningfully taxing the ultra-wealthy and fixing the personal tax system. Hence, we must tax now, or risk taxing never.

Keywords: Tax Reform, Income Tax, Investment Income, Realization Doctrine, Wealth Tax, Political Optionality

JEL Classification: K, K34

Suggested Citation

Gamage, David and Brooks, John R., Tax Now or Tax Never: Political Optionality and the Case for Current-Assessment Tax Reform (2021). 100 North Carolina Law Review __, Forthcoming, Indiana Legal Studies Research Paper No. 437, Available at SSRN:

David Gamage (Contact Author)

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States


John R. Brooks

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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