Taxes

• Published date: 01 January 2021
• Author: Eugene F. Fama
• Date: 01 January 2021
• DOI: http://doi.org/10.1111/eufm.12300

DOI: 10.1111/eufm.12300

ORIGINAL ARTICLE

Taxes

Eugene F. Fama

Booth School of Business, University of

Chicago, Chicago, Illinois, USA

Correspondence

Eugene F. Fama, Booth School of

Business, University of Chicago, 5807

South Woodlawn Ave., Chicago, IL, USA.

Email: eugene.fama@chicagobooth.edu

Abstract

This is a compendium of notes on taxes. Section 2 presents

a general tax scheme. It is a tax on value added by labour

and capital that does not favour one or the other. Section 3

contrasts taxation of business income for pass‐through

entities and corporations. Section 4 discusses property

taxesastaxesonhousingservicesandsoaformofincome

tax.Section5turnstowealthtaxes. The closing Section 6

attempts to explain why people donate to nonprofits but

minimise tax payments to governments, even though

governments and nonprofits engage in many of the same

activities.

KEYWORDS

business tax, nonprofits, value added tax, wealth tax

JEL CLASSIFICATION

H2

1|INTRODUCTION

This is a compendium of several related notes on taxes. Section 2presents a simple general

tax scheme. It is a tax on value added by labour and capital that does not favour one over the

other. Section 3, on business income taxes, contrasts the taxation of business income for

closely held pass‐through entities and open corporations. Section 4discusses property taxes as

annual taxes on housing services and so a form of income tax. Section 5turns to wealth taxes.

Its main point is that like property taxes, wealth taxes imposed annually are income taxes that

are large relative to annual income or consumption services from taxed assets. As a result,

wealth taxes can have large negative effects on the prices of taxed assets. The paper closes

with (what I think is) a fun Section 6contrasting governments and nonprofits and the way

they are financed. The puzzle posed is to explain why people donate to nonprofits but

EUROPEAN

FINANCIAL MANAGEMENT

Eur Financ Manag. 2021;27:3–11. wileyonlinelibrary.com/journal/eufm © 2020 John Wiley & Sons Ltd.

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Thanks to John Cochrane, John Doukas and Eric Zwick for helpful comments.