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This Article frames the problem of capital taxation as a dilemma of the middle of history. At the “beginning of history”—before any wealth inequality has emerged and before individuals have made any saving choices—the much-cited Atkinson-Stiglitz theorem teaches that the optimal capital tax is zero. At the “end of history”—after individuals have made all of their saving choices—the optimal capital tax is generally agreed to be 100%, since a capital tax today cannot distort decisions made in the past. Neither result tells us how to proceed in the “middle of history”—after significant wealth inequality has emerged but while the shadow of the future still looms large. Yet absent an imminent apocalypse, the “middle of history” is the temporal reality with which our tax policies must contend.

The central question for capital taxation in the middle of history is how governments today can respond to accumulated inequalities while credibly committing to future tax trajectories. This Article focuses on three factors—institutions, inequality, and ideas—that mediate the relationship between past and present policy and expectations of future policy. Exploring these three mediating factors in deep detail can enrich our positive understanding of capital taxation’s real-world effects while refining our normative views about optimal capital tax design. Economic reasoning proves useful to this inquiry, but the Article also emphasizes the importance of integrating perspectives from history, political science, sociology, and—not least—law into a holistic account of capital taxation and credible commitment.

The analytical payoffs from such an approach are far-reaching. For example, a middle-of-history perspective complicates the conventional wisdom regarding the relationship between capital taxation and investment incentives: Capital tax cuts—which are typically thought to incentivize investment—may have the reverse effect when they undermine public confidence in the political stability of a low-capital-tax regime. Beyond the implications for tax, a middle-of-history perspective can yield lessons for—and derive lessons from—fields ranging from criminal justice to intellectual property, which face credible commitment problems comparable to tax’s dilemma. The challenge of sustaining credible commitment when policymakers’ incentives are time inconsistent is not just a problem of capital taxation in the middle of history but a more general problem of law in the middle of history.

This Article considers the distributional consequences of the Supreme Court’s federalism jurisprudence over the past quarter century, focusing specifically on the anti-commandeering, anti-coercion, and state sovereign immunity doctrines. The first of these doctrines prevents Congress from compelling the states to administer federal programs; the second prevents Congress from achieving the same result through offers that for practical purposes the states cannot refuse; the third prohibits Congress from abrogating state sovereign immunity outside a limited class of cases. These doctrines vest the states with valuable entitlements and allow the states to sell those entitlements back to Congress for a price. In this respect, the doctrines have an intergovernmental distributional effect, shifting wealth from the federal government to the states.

The distributional consequences of the anti-commandeering, anti-coercion, and state sovereign immunity doctrines are not purely intergovernmental, however. The doctrines also have potential implications for the distribution of wealth across individuals and households. By forcing Congress to bear a larger share of the costs of federal programs, and by shifting some of the costs of liability-imposing statutes from the states to Congress, these doctrines allow the states to raise less revenue and compel Congress to raise more. For a number of historical as well as structural reasons, the federal tax system is dramatically more progressive than even the most progressive state tax systems, and so the reallocation of fiscal responsibility resulting from these federalism doctrines causes more revenue raising to occur via the more progressive system. The likely net effect is a shift in wealth from higher-income households (who bear a larger share of the federal tax burden) to lower- and middle-income households (who would have borne a larger share of the burden of state taxes).

This conclusion comes with a number of caveats. The distributional consequences of the Supreme Court’s federalism doctrines may be moderated—or magnified—by differences in federal and state spending priorities. Moreover, the doctrines may affect the size of government as well as the allocation of fiscal responsibility across levels of government (though the net effect on government size is ambiguous). And the doctrines may have distributional consequences that are not only interpersonal, but also intergenerational. What seems clear from the analysis in this Article is that federalism doctrines affect the distribution of income and wealth in subtle and sometimes unexpected ways, and that a comprehensive understanding of wealth inequality in the United States requires careful attention to key features of our fiscal constitution.