This week’s @TheEconomist has a lead article on how to reform the tax system. Let me briefly summarize and comment from the perspective of a public finance economist #taxtwitter @ryanavent
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Optimal tax theory suggests to tax things at high rates that react little to taxation (i.e. have a low elasticity of tax base w.r.t. to tax rate), and where the incidence falls on people you want to redistribute away from. The Economist follows this perspective pretty closely.2/8
For corporate tax, it suggests to focus on investors, have full expensing, and scrap deductions for interest. Without naming it, this is a call for a destination-based cash flow tax (which taxes supra-normal profits & falls on domestic investors)3/8 @devereux_mike @YohannesBecker
On income taxes, it suggests low or negative tax rates for the low earners. I miss the word “marginal” here (before tax rates ;-) ). 4/8 @APeichl
Otherwise, it suggests to use land value taxes and inheritances taxes, both very unpopular, but relatively efficient. Unfortunately, the article says little on inheritance tax, where the argument that it is non-distortive is simplifying a lot. 5/8
On land value taxes, there is a long Briefing article, which addresses most issues.
economist.com/briefing/2018/… 6/8
economist.com/briefing/2018/… 6/8
This tax lowers land values, so it falls on current landowners, without incentives against property development. The main issue is valuation – the article says it can be done because New Zealand manages to do it, but I wonder how any experts see it? (Not my area…) 7/8
In any case: Nice articles, and I especially agree with the fundamental insight: We need to think about a fundamental tax reform!
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