Thursday, January 10, 2013

Reforming the Tax Cpde

Fixing the tax code is an excellent example - a micro of the macro, of the kind of thinking and methodology described in the latest series of posts. According to Bruce Bartlett in, The Benefit and the Burden: Tax Reform-Why We Need It and What It Will Take, as discussed in the December AARP Bulletin, the US tax code is incomprehensible to the vast majority of Americans including the accounts and other experts responsible for it. The key problem, Bartlett says, is conceptual and has to do with what constitutes the tax base. This is not a problem that can be fixed by redesigning tax forms or providing clearer instructions.


For 100 years, taxation has been based on income and today, income is just to slippery a concept to form the basis of taxation. It is too mobile, too hard to locate geographically, too easily redefined into different forms or masked in various financial structures. The two tax bases that are best suited to the current economic environment are consumption and real property.


Moving from an income tax system to one based on consumption and property will be painful, complicated, difficult, politically contentious, time consuming, and will probably take decades. But if we want ‘fairness’—everybody including corporations paying their fair share, and if we want to close all the loopholes and capture most of the revenue available, then some form of a tax system to one based on consumption and property will be necessary.

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