E. CARY BROWN and JEREMY I. BULOW

THE PURPOSES of this paper are to define business income in a way that is congenial in the main to economists, to consider the situations and assumptions that permit this definition to be carried over as an acceptable basis for taxation (that is, that tax liabilities arise and tax payments are asserted consistently on the basis of this definition of income), to see where and how the definition may break down, and to consider possible remedial action.

This menu is indeed a large one. We will have to concentrate on major aspects of the definition of taxable business income. We will not consider taxable personal income, personal deductions, or exemptions, nor will we discuss whether income, rather than some other tax base such as consumption or wealth, should form the basis for taxation. We will assume that the income tax base, defined in this particular way, would apply to businesses being taxed under either an in rem business income tax or an in personam tax imposed on firms as part of a comprehensive personal income tax. We thereby also exclude a discussion of the consolidation of common business interests and the business capital unit for which income is defined -- whether it is the common stock, all equity capital, or all contributed capital. How-

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