October 1, 1978

Tax Review: Is Heavy Taxation of Capital Socially Desirable?

Download Tax Review: Is Heavy Taxation of Capital Socially Desirable?

Volume XXXIX No. 10

Executive Summary
“The most important long-run structural problem with the U.S. economy is that we undersave,” writes economist Michael J. Boskin in this essay. Professor Boskin maintains that current U.S. tax policy is preventing the nation from accumulating enough capital and that the current saving rate is grossly inadequate. Professor Boskin argues that our lack of saving “is a fundamental, pervasive problem, which involves an enormous waste of resources.” The best solution, he maintains, involves “a major changes in our tax system: replacing taxes on income with taxes on spending; i.e., removing saving from the tax base.”


A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.