Here’s a very good article from Larry Summers, former US Treasury Secretary, on what real tax reform should look like. Up to this point, the conversation on Capitol Hill has largely focused on two very simple aspects of tax reform; marginal rates and deductions.
While both of these issues are important, there is so much more to adequate tax reform. Summers goes in:
…the numerous exclusions from the definition of adjusted gross income that enable the accumulation of great wealth with the payment of little or no taxes. The issue of the special capital gains treatment of carried interest – performance fee income for investment managers – is only the tip of a very large iceberg. There are far too many provisions that favour a small minority of very fortunate taxpayers. Because these provisions effectively permit the accumulation of wealth to go substantially underreported on income and estate tax returns, they force the federal government to consider excessive increases in tax rates if it is to reach any given revenue target.
Talking about tax rates and deductions is good, but it’s important that we realize that not all income and wealth is currently taxed or taxed adequately — especially certain pockets of income and wealth that is largely accumulated at the top of the income scale.
This isn’t by accident of course. Wealthy individuals and corporations pay very smart people to come up with strategies to help them hide and shelter their wealth in creative ways. Typically, these strategies are perfectly legal and leave the rest of us, those not wealthy enough to take advantage of these kinds of schemes, with the tab.
It should be noted that even with reform, new schemes and new modes of compensation will arise to make sure that wealthy people pay as little as possible. Good tax policy, it seems, takes constant vigilance.
Read the full article here.