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Tuesday, December 18, 2012

Tax reform via more obscure provisions

While recent newspaper stories tend to be focused on reducing the mortgage interest deduction, state taxes and charitable contributions, there are a lot more areas that warrant change due to inequities, inefficiencies, lack of transparency and complexity. While some of these other provisions are not nearly as large as the cost of the mortgage interest deductions (which costs about $100 billion per year and is claimed by only about 25% of individuals), they should not be overlooked in reform because change is needed to help the tax law better meet principles of good tax polciy.

Here are two people raising some of these other items:
  1. Larry Summers, former Treasury Secretary under President Clinton - he has an article in the 12/16/12 Financial Times - "How to fix costly and unjust US tax system." He questions the like-kind exchange rules which usually applies to a form of sales, as well as sheltering income in Bermuda.  He also asks why certain valuation rules allow some individuals to accumulate millions of dollars in tax-free IRAs while most individuals are limited to only contributing $5,000 per year.
  2. Senator Coburn has a few reports (including one available for $9.99 on Amazon/Kindle), that lists many obscure provisions in need of reform (mostly elimination). He notes the special 7-year depreciation life for NASCAR racetracks. He also questions reforestation preferences, economic development incentives (such as the New Markets Tax Credit), and the low-income housing credit (which he describes as inefficient). His proposals raise just under $1 trillion over 10 years. See his "Back in Black" report on the web or Amazon.
Query - how will all of these provisions that do not help our tax system meet principles of good tax policy, get reformed?  Is it possible?

What do you think?

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