“Banks don’t lend anymore. Hedge funds have stepped in.” Lee Sheppard wrote these words in 2005, but the financial crisis starting in 2008 has shone a spotlight on this significant change in the reality of modern finance. What role hedge funds may have played in causing the financial crisis is debatable, but few will dispute that U.S. businesses have had trouble finding capital even as the economy, on the whole, has started to recover.

There are many possible contributors to the onset of the capital crunch. Among them are banks, which had difficulties meeting capital requirements, in part because their balance sheets were weighed down by mortgage-backed securities that proved to be less valuable than initially thought, and in part because of changes in accounting rules, as well as increases in minimum capital reserve requirements. The U.S. government and the Federal Reserve responded by combining to invest trillions of dollars to purchase “toxic” securities, guarantee loans, provide additional loans, and make direct capital injections into troubled financial institutions.

We argue that a spending tax, as opposed to an income or wage tax, is the last best hope for a return to significantly more progressive marginal tax rates than obtain today. The simple explanation for this central claim looks to incentive effects, especially for rich people. High marginal tax rates under an income tax fall on and hence deter the productive activities of work and saving. High marginal rates under a wage tax fall on and hence deter the productive activity of work alone. But high marginal rates under a spending tax fall on and hence deter high-end spending, which is arguably a social bad, and do not necessarily deter the social goods of work and saving; indeed, a progressive spending tax may increase saving. The idea is that because one can escape or defer paying taxes under a progressive spending tax by saving, an activity with positive social externalities, the efficiency costs of high marginal rates under a spending tax can be mitigated. A spending tax can bear more steeply progressive rates with less cost in efficiency or social wealth than an income or wage tax. A progressive spending tax also holds out the possibility of sorting the rich or high-ability into two groups, elastic savers and inelastic spenders: separating the two types of taxpayers could yield welfare gains unavailable under income or wage taxes, which under current technologies can only sort the high-ability into workers and nonworkers. Progressive spending taxes also fall on consumption financed by windfall gains, doing so with diminished adverse incentive effects.

Most of the Article sets out analytic possibilities. In the final part, we add a sketch of both a welfarist and a fairness-based argument for progressive spending taxes and conclude with a call for a major new research agenda.

Over the past decade, the Internet has become an integral part of our society, and its expansion has led to a surge in e-commerce. E-commerce, defined as “any business transaction completed over a computer network, including . . . the sale of goods or services,” has similarly become integral to our society. The popularity of e-commerce is reflected in the observation that most consumers consider online retail to be “a primary benefit of the Internet.” The Internet has dramatically enhanced the ease and convenience of engaging in e-commerce in the United States and worldwide. Purchasing items ranging from textbooks to antique lamps to luxury handbags is now only a mouse click away. Items can be purchased remotely from “click and mortar businesses”—retail businesses with both a physical and Internet presence—and small online businesses alike.

Online selling platforms, such as eBay, Amazon, and Google Checkout, have facilitated the growth of sales by small businesses, sole proprietors, and casual sellers. For instance, eBay, “the world’s largest online marketplace,” has contributed to the evolution of e-commerce by bringing sellers and buyers together in a virtual marketplace, offering a variety of both new and used items. With more than 724,000 Americans reporting that they derived their primary or secondary source of income from eBay sales in 2005, tax law must be modernized to facilitate effective taxation of Internet commerce. In particular, income tax law must be updated to incorporate income generated by e-commerce and ensure that this income is properly reflected on the tax returns of online sellers and appropriately taxed.

Sovereign wealth funds (“SWFs”) have been making headlines. In 2008, SWFs made major investments in Morgan Stanley, Citigroup, Blackstone, Carlyle, and Merrill Lynch, most of which sought large infusions of cash in the wake of the credit crunch. SWFs have also made substantial investments outside of financial services, but those investments have generally not been as large or as visible.

Investments by SWFs are highly controversial. Press reports talk of the United States selling off its assets and mortgaging its future. Less colorfully, critics argue that foreign governments are expanding their influence over U.S. economic and foreign policy. Commentators and policymakers are concerned that foreign governments might use their SWFs to advance their own national interests to the detriment of those of the United States. Among the potential actions most frequently mentioned are transfers of technology and explicit or implicit threats to divest if the United States pursues policies at odds with the investor’s interests. There is another side. Proponents emphasize the economic benefits of reducing the cost of capital by attracting foreign capital. Still other commentators point to various social and economic benefits from the greater economic integration that comes when foreign investors, including foreign governments, invest in the United States.

In 1998, in State Street Bank & Trust Co. v. Signature Financial Group, Inc., the U.S. Court of Appeals for the Federal Circuit rejected the contention that “business methods” are per se unpatentable, and stated that a business process patent can be granted on the same basis as any other patentable invention. The decision fostered a new awareness that business method claims could be patented, and in the wake of State Street Bank, the United States Patent and Trademark Office (“USPTO”) saw an almost six-fold increase from 1998 to 2001 in the number of patent applications for business methods. While some commentators applauded the State Street Bank decision, others maintained that methods of doing business should be an excluded category of invention, articulating that the traditional filters of patent law are not appropriately sized to sieve overly broad business practices from attaining patent protection. Despite those concerns, business methods remain patentable inventions.

Athletic competition strengthens not only athletes’ bodies, but also their minds by training them in the values of self-discipline, self-sacrifice, hard work, and the pursuit of excellence. In addition, athletes learn important lessons on social values, such as leadership, cooperation, camaraderie, and collective responsibility through participation in competitive events. The ability of athletic competitions to instill such desirable values in their participants potentially enables intercollegiate athletics to further traditional educational goals by supplementing and enriching the academic experience of student-athletes with valuable life lessons.

The powerful morbidity and mortality effects of diet combined with growing concern about the obesity “epidemic” have led public health scholars and public interest advocates to call for taxes on food. 3 The proposals fall into two different categories. First, there are “junk food taxes” on less nutritious foods such as soft drinks, candy, or snack foods. Second, there are more ambitious taxes that would apply to a much broader range of foods and food components.

A corporate inversion is a paper transaction in which an American corporation reincorporates in a foreign nation without moving any of its operations to that country. The principle reason that a corporation will invert is to save money on taxes, in some cases as much as $60 million annually. Politicians, believing these companies are reincorporating in a foreign country to evade taxes, have introduced numerous bills to try to stop these companies from moving overseas. Senator John Kerry, the 2004 Democratic presidential nominee, stated that he plans to stop inversions within 500 days of his election to office. These corporations, however, have demonstrated that they will not give up these tax savings without a fight. Leucadia National Corp., a company that underwent an inversion in 2002, has hired a high-priced lobbying firm to block congressional efforts to stop inversions.

The design of the tax system and substance of tax laws have an effect on nearly every economic decision made by individuals. Whether to invest or consume, buy or sell, and what forms of consumption or savings in which to engage are all issues that are influenced by the design of the tax system and the substance of tax laws. The tax treatment of debt in the U.S. hybrid-based income tax system generates inequities and inefficiencies that result from both an inconsistent base and failures in timing. Americans with high net wealth and sophisticated tax advisors can strategically use the inconsistent base and timing problems associated with debt to avoid, delay, or shift tax burdens. Unfortunately, for lower- and middle-class Americans without the benefit of tax advisors, the inconsistent base and timing problems associated with debt in our tax system can be economically detrimental.

The United States raises revenue through a variety of taxes that are fragmented or “disaggregated” into multiple components. Although most Americans think of taxes primarily in terms of the income tax, its lesser known cousin, the payroll tax, produces nearly identical revenues while falling disproportionately on the poor and middle-class. Disaggregating the tax system into several component taxes thus conceals the true aggregate tax burden on taxpayers. This misleading effect is exaggerated because the media and politicians focus on the income tax while ignoring the equally significant payroll tax.