Benefit-Based Taxation can Include Substantial Redistribution

Contrary to a long-standing concern, we present evidence that classical benefit-based labor income taxation in the tradition of Smith (1776) is consistent with income redistribution through transfers and negative average tax rates both theoretically and---in plausibly-specified simulations---quantitatively at levels which reflect U.S. policy over the past several decades. As redistribution is widespread in practice, our results remove an obstacle to the benefit principle’s plausibility as a prevailing normative foundation of tax policy.