Larry Summers argues that tax reform is an essential element of deficit reduction. There has been a lot attention given to entitlements, and some things will need to be done to sustain social security, but they are minor compared to healthcare costs. The problem with containing healthcare costs is that it will be difficult to overcome resistance from private healthcare providers. I'm sure that his experience with healthcare reform while he was in the Obama Administration is reflected in that observation.
He believes that it is politically difficult to raise revenue by raising the top marginal taxes rates beyond what they were in the Clinton Administration. His focus is on tax expenditure reforms. The Simpson Bowles Committee recommended that they be eliminated from the tax code and that marginal tax rates should be reduced. Many of these tax expenditures encourage unfair gaming of the tax system. For example, US corporations reported profits in Bermuda that were more that six times Bermuda's GDP. Ireland and Luxembourg have also been used as tax havens by US corporations.
The goal of tax reform is not only to raise revenues that are needed to reduce budget deficits. The system needs to be fairer and more progressive. Public concerns about the fairness of the tax system, and rising income inequality, are a major reason for the lack of confidence in government.
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