Let's veer into the political economy today, a sort of third rail of market and economic commentary. The reason I want to discuss it is the tax grab contemplated by the Biden Administration in the US. Yesterday, news came out that Biden is to make good on his promises
Overall, I like your proposal and would love to see it happen, but I agree it never will. I think you're correct about treating income from all sources the same if only to give the tax system a sense of fairness. In this regard, I loathe the carried interest rule, but it survives both Democrat and Republican administrations due to the political influence of the finance industry. Maybe Biden will finally change it.
Two of your points I might quibble with, but perhaps only because you couldn't address all of the details in this post. First, I think the current income tax rates are already very flat, with the top bracket of 37% applying to married couples earning over $622,000. That's probably the top end of the upper middle class in some high income coastal areas. I think brackets at say a million and ten million dollars (say 40% and 43% respectively) would add to a sense of fairness that the very wealthy are paying more. Second, I don't really think of the mortgage interest deduction as a loophole since originally all interest was deductible and correspondingly treated as income to the recipient of the interest. This makes logical sense in that the idea was to tax income only once and through the payment of interest a taxpayer was merely transferring some income to another taxpayer who would then be taxed on it. Over time the interest deduction was whittled away until mortgage interest was all that's left. That said, I'd support eliminating the deduction as part of an overall simplification of the tax code. Thanks for sharing your thoughts on this topic.
I think this is my favorite article of yours. Thank you, Ed. Baumol's disease is such an important insight. I remember reading Paul Craig Roberts complain that his idea for the Reagan tax cuts was to raise productivity in scalable jobs, such as manufacturing. The secondary effect would have been as Baumol claims. Instead, those jobs were off-shored, and we were left with the America we have today. Roberts made it clear that the blame for abusing his tax cuts was on both the Dems and the GOP.