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Page 173
dence of the taxes capricious and unequal. People at the same economic level pay very different taxes depending on the accident of the source of their income and the opportunities they have to evade the tax. If present rates were made fully effective, the effect on incentives and the like might well be so serious as to cause a radical loss in the productivity of the society. Tax avoidance may therefore have been essential for economic wellbeing. If so, the gain has been bought at the cost of a great waste of resources, and of the introduction of widespread inequity. A much lower set of nominal rates, plus a more comprehensive base through more equal taxation of all sources of income could be both more progressive in average incidence, more equitable in detail, and less wasteful of resources.
This judgment that the personal income tax has been arbitrary in its impact and of limited effectiveness in reducing inequality is widely shared by students of the subject, including many who strongly favor the use of graduated taxation to reduce inequality. They too urge that the top bracket rates be drastically reduced and the base broadened.
A further factor that has reduced the impact of the graduated tax structure on inequality of income and wealth is that these taxes are much less taxes on being wealthy than on becoming wealthy. While they limit the use of the income from existing wealth, they impede even more strikinglyso far as they are effectivethe accumulation of wealth. The taxation of the income from the wealth does nothing to reduce the wealth itself, it simply reduces the level of consumption and additions to wealth that the owners can support. The tax measures give an incentive to avoid risk and to embody existing wealth in relatively stable forms, which reduces the likelihood that existing accumulations of wealth will be dissipated. On the other side, the major route to new accumulations is through large current incomes of which a large fraction is saved and invested in risky activities, some of which will yield high returns. If the income tax were effective, it would close this route. In consequence, its effect would be to protect existing holders of wealth from the competition of newcomers. In practice, this effect is largely dissipated by the avoidance devices already referred to. It is notable how large a fraction of the new accum-

 
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