The base for direct taxation: commentary

The chapter of J. Banks, P. Diamond and J. Mirrlees (BDM) presents an excellent
survey of the existing literature on optimal taxation and discusses a number of
lessons that can be drawn from that literature. One of the main lessons on which
their chapter focuses concerns the treatment of capital income. The authors argue
that the finding that the optimal income tax schedule should not include tax on
capital is based on too many restrictions, and is thus not robust for policy purposes.
Another lesson is that taxation should vary with age. Not having any quarrel with
these two points, I would like in this comment to discuss a number of points too
quickly dealt with or deliberately neglected by BDM. They concern the issue of
tagging, the problem raised by having more than one unobservable characteristic
(besides ability), the issue of myopia and prodigality, the question of equal
opportunities, the taxation of couples and the threat of tax competition