As economic inequality reaches new heights every decade, academics stress the importance of the tax system in matters of equity. In contemporary winner-take-all markets, much of the massive income and wealth accumulated by the rich are the result of deliberate and calculated economic gambles that turned out in their favor. Yet theories of distributive justice such as Ronald Dworkin’s brute luck egalitarianism have committed themselves to the position that even if these market outcomes are the results of luck, the unequal outcomes are justified insofar as investors chose to take such risks.
This Article argues, in contrast to the aforementioned theories, that inequalities resulting from option luck, the luck involved in deliberate and calculated gambles, remain unjust. This theory entails novel arguments in favor of imposing additional tax burdens on the most well-off members of our society and taxing capital income by demonstrating the extent to which unequal market outcomes are undeserved. Technological developments have led to winner-take-all markets in which even small amounts of option luck can lead to a wide divergence in results. A further tax imposed on the winners of such markets helps neutralize the economic inequalities resulting from luck. Differences in capital income are partly unjust because differential returns to investments are attributable, in large part, to chance. A tax on capital income compresses the distribution of these returns by lowering the returns to winning bets (by taxing such returns) and the losses of losing bets (by allowing deductions for such losses).
Taxing Option Luck,
U.C. Irvine L. Rev.
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