Commentary on Tax by Design: The Mirrlees Review


  • Submitted December 2010.

  • The author would like to thank Stuart Adam, Richard Blundell, Michelle White and a referee for comments on an earlier draft, and UCL for hospitality during the period in which he wrote this review.


The objective of this commentary is to explore the relationship between the reforms proposed in Tax by Design and the recent academic literature. This literature provides solid support for the Mirrlees Review's dramatic proposals to eliminate any personal taxes on the normal rate of return to savings and to eliminate any net tax on new business investment. There is also solid support for the full taxation of any excess returns on financial investments, including income from capital gains.

The commentary does raise questions, though, about the specific methods proposed to achieve these reforms. The proposal advocates adoption of rate-of-return allowances for individual savings under the personal tax and for business investment under the corporate tax. A commonly proposed alternative is to redefine the personal tax base to equal annual consumption and to allow expensing of new investment under the corporate tax. With such reforms to the personal tax, there is no longer even a clear reason to retain a corporate tax. The commentary also emphasises the pressures arising from cross-border investments and cross-border migration of individuals, issues given little attention in the review.

These questions regard details of implementation. The overall proposals receive strong support in the academic literature.