Monday, January 11, 2021
David Kamin (NYU), How Far to Go in Reforming Taxation of Wealth: Revenue and Tax Avoidance, 168 Tax Notes Fed. 1225 (Aug. 17, 2020):
The article describes the revenue estimates of incremental versus fundamental reform options for taxation of individual wealth, and explains how tax avoidance assumptions underlie the larger estimates for fundamental reform.
Taxing capital effectively at the individual level requires making significant reforms to the tax base. There is wide agreement among experts that our system has major routes for escaping taxation, with step-up in basis being a significant one. The question then is how far policymakers should go in reform — and along the continuum of potential reforms, how much avoidance would be left. Proposals can be roughly grouped between incremental ones, focusing reforms at the point that property gets transferred, and more fundamental ones, taxing capital without a transfer of property.
Current estimates suggest that both would represent significant changes with measurable effects on avoidance, but the fundamental reforms would in fact go much further in terms of reducing avoidance and raising revenue. However, as this article shows, it seems possible that the incremental reforms in their most aggressive versions — especially addressing untaxed gifting of property to charity — could in fact approach the effects of the more fundamental ones, having closed off several major routes for avoidance. It is a topic at least worthy of additional analysis and explanation, tying the revenue estimates and underlying assumptions to the known ways capital escapes tax.