ABSTRACT
The US individual income tax has been eroded by numerous special provisions which remove large chunks from the tax base and reduce the revenue potential of any set of tax rates. To determine the extent of erosion of the income tax, a comprehensive definition of income must be adopted to provide the norm against which the existing tax can be assessed. 1 I use a concept which corresponds as closely as possible to an economic concept of income, i.e. consumption plus tax payments plus (or minus) the net increase (decrease) in the value of assets during the year. The modifications to this definition are dictated largely by practical administrative considerations or by historical precedents which need not (or could not) be broken for this purpose. First, capital gains are included in income when realised or when transferred to others through gift or bequest; second, gifts and inheritances are excluded from income; third, a separate corporation tax is retained, and all dividends (but not undistributed profits) are included in income; fourth, employer contributions to private pension plans are not considered current income to the employee; and fifth, imputed rent on owner-occupied homes is taxed.
