Thank you, Chairman Whitehouse, Ranking Member Grassley, and members of the Committee. It is a great pleasure to be able to discuss future directions of tax policy with you. In the few minutes I have, I want to emphasize four directions for reform. They all center on making our tax code more equitable and helping it to create a more dynamic economy that promotes the wellbeing of all Americans, rather than just Wall Street and other corporate giants or the wealthiest individuals. In my remarks below, I will illustrate how the tax code has explicitly contributed to inequality and excessive financialization of the economy, and distorted the allocation of investment towards fossil fuels and real estate and away from investments that would sustainability raise living standards. In particular, US tax policy provides considerable advantages for unproductive activity from Wall Street firms and wealth investors. The first set of reforms should be obvious, but there are strong forces pushing the other way: We need to close the loopholes and eliminate the special provisions that result in the richest individuals and most profitable firms not paying their fair share of taxes. Those at the top pay a smaller proportion of their true income (especially if we were to include unrealized capital gains) than do the less well off. 1 Today, remarkably, billionaires in the United States have a lower effective tax rate than working class Americans. It makes no sense that dividends and capital gains should be taxed at lower rates than wages—it is fundamentally inequitable that someone who is receiving dividends in his beach resort from inherited stocks should pay a fraction of the taxes of a nurse who is working long hours to take care of us during the COVID-19 pandemic. Or that a hedge fund manager uses the carried interest loophole so she, too, can escape much of the taxes she would otherwise have to pay. Fair taxation of capital gains would eliminate their tax advantages over other forms of income by at least equalizing tax rates. Further, we should implement a constructive realization policy, where gains are taxed based on the current value of assets, rather than only when gains are realized (entailing mark-to-market for marketed assets). 2 At a bare minimum, failing to implement a fully effective system of constructive realization, we need to tax fully unrealized capital gains at death. As it now stands, we tax capital gains only upon realization, which can give rise to a locked-in effect and marked de facto preferential treatment. To start, Congress should implement President Biden’s proposed “Billionaire Minimum Income Tax,” which would require households worth more than $100 million to pay a 25% annual minimum tax on their full income, including realized and unrealized gains. Because wealth can be easily shifted from one country to another, international coordination is needed to ensure that every country can impose an effective minimum tax on the rich. Brazil’s G20 initiative, for example, proposes a global minimum capital income tax of at least 2% of wealth. These two
See, for example: Leiserson and Yagan (2021); Eisinger, Ernsthausen, and Kiel (2021); Gale and Vignaux (2023); and Saez and Zucman (2019). 2 There are many details of such a system which I do not have time to expound on today. 1
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