In its current state, optimal tax theory is incomplete as a guide to action for critical issues in tax policy. It is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist. The coercive nature of collecting taxes implies that the resource cost of implementing a tax system is large. Furthermore, alternative tax systems differ greatly in the resource cost of operation. Differences in the ease of administering various taxes have been and will continue to be a critical determinant of appropriate tax policy. I will first walk the reader through three of the principal propositions of optimal tax theory, pointing out along the way the key assumptions of the restricted problem under consideration. Next, I comment on the influence of the theory on recent tax policy developments. I conclude by sketching an alternative to optimal taxation, which I call the theory of optimal tax systems. This theory embraces the insights of optimal taxation but also takes seriously the technology of raising taxes and the constraints placed upon tax policy by that technology. A theory of optimal tax systems has the promise of addressing some of the fundamental issues of tax policy in a more satisfactory way than the theory of optimal taxation.
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