IFS Annual Lecture 2005: Taxation and Big Brother: Information, Personalization and Privacy in 21st Century Tax Policy

Information is central to the theory and practice of taxation. The modern theory of optimal taxation suggests that an efficient tax system should take advantage of all available information. At least until recently most experts argued that the best tax is a comprehensive, personalized income tax where tax liability depends on all sources of income as well as demographic characteristics. Tax collection is greatly facilitated when the tax collection agency receives information reports from taxpayers or third parties to the collection process.

The revolution in information technology has greatly facilitated the collection, transmittance, and monitoring of information. Many private companies now routinely collect and make use of data about their customers to personalize marketing and pricing. Although the capacity for government to follow suit exists, so far governments have generally resisted utilizing this kind of information. If anything, the trend in developed countries has been away from personalized tax systems to impersonal, business-based systems such as the value added tax.

Whether, and how, tax policy should respond to the information technology revolution raises fundamental questions about the relationship between government and its citizenshow activist it should be, how intrusive it should be, and under what circumstances it should discriminate among taxpayers.

Joel Slemrod is the Paul W. McCracken Collegiate Professor of Business Economics and Public Policy at the University of Michigan Business School, and Professor of Economics in the Department of Economics. He also serves as Director of the Office of Tax Policy Research, an interdisciplinary research center housed at the Business School. Professor Slemrod received the A.B. degree from Princeton University in 1973 and the Ph.D. in economics from Harvard University in 1980. He joined the economics department at the University of Minnesota in 1979. In 1983-84 he was a National Fellow at the Hoover Institution and in 1984-85 he was the senior staff economist for tax policy at the President's Council of Economic Advisers. He has been at Michigan since 1987. Professor Slemrod has been a consultant to the U.S. Department of the Treasury, the Canadian Department of Finance, the New Zealand Department of Treasury, the South Africa Ministry of Finance, the World Bank, and the OECD, and has been a member of the Congressional Budget Office Panel of Economic Advisers. He is co-author with Jon Bakija of Taxing Ourselves: A Citizens Guide to the Debate over Taxes, whose third edition was published in 2004. From 1992 to 1998 Professor Slemrod was editor of the National Tax Journal. His current research interests focus on the taxation of business and optimal tax enforcement systems.