James P. Spica


Patricia White recently asked a simple question: What is the value of systemic coherence, or rationality, in tax legislation. This is asked along the way of an errand that does not require its answer, but White supposes, in passing, that the value queried is relative: no doubt systemic coherence is desirable, but it may conflict with other values predicable of a tax system, values it cannot invariably trump. This entails, on the one hand, that normative claims for rationality in this sphere regularly imply assignments of weights, and, on the other hand, that systemic coherence ought to be irresistible whenever it can be achieved without prejudice to competing values whenever, that is, other things may be said to be equal.

The Internal Revenue Code (hereinafter "IRC" or the "Code") displays cases of the latter description in which Congress has, nevertheless, contrived to resist rationality's appeal. These represent a highly refined strain of incoherence in the Code. In each of them, coherence could have been achieved without prejudice to any systemic value with which it might otherwise compete. These are not cases in which rationality has been sacrificed for the sake of simplicity, administrative convenience, taxpayer-morale, or any other colorable desideratum. They are cases in which the only principled purchase of incoherence is incoherence. Yet they are evidently not inadvertent: at places in which Congress might easily have stumbled on coherence, it has drawn itself up, and gone carefully around.

Such 'refinement' suggests analogies to the kind of irrationality displayed by decision makers whose preferences violate the standard axioms of decision theory. The goal of this article is to explore one such analogy. It will be argued here that certain provisions of the Code-we shall focus on section 642(g) for illustration-are analogous to violations of what decision theorists sometimes call a "sure thing principle.." The analogy yields both a precise account of what evidently goes wrong in these provisions, and a straightforward general characterization of the sense in which they are irrational. The Code's treatment of an item is irrational in this sense if it would be possible to make a book against someone having the same pattern of preferences (for the treatment of that item) in such a way that she would lose out, by her own standards, no matter what happened. On this conception, tax rationality is a kind of formal coherence. It has nothing to say about the ends Congress pursues through taxation; it requires only that a tax scheme be suited to those ends (whatever they are) so as to promote, rather than frustrate, their achievement.

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