Samir’s Selection 09/19/2014 (a.m.)

  • the narrowing of the tax base, both personal and corporate, also reflects two failures of tax policy. The first is the proliferation of exemptions and deductions that go far beyond reasonable poverty-fighting policies. America is the most egregious offender. Its income tax (which contributes a bigger share of overall revenue than in other rich countries) is riddled with myriad deductions, from medical insurance to mortgage interest, which collectively cost a whopping 7% of GDP and mean that income tax is levied on a much narrower base than it could be. Other rich countries, from Italy to Australia, also have too many unnecessary deductions…

    The second problem, which applies most to corporate income taxes, is that tax rules have failed to keep up with the reality of the 21st-century economy. A web of arcane bilateral tax treaties allows clever companies to shift their profits from high-tax to low-tax jurisdictions, whether by registering patents or setting up intra-company loans. A firm’s tax bills depend more on what industry it is in and how clever its accountants are than its profitability. America, with the highest marginal rate, has the biggest distortions.

    tags: tax corruption taxavoidance publicpolicy

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