The Fairest, Kindest Tax Reform

by Gerald E. Scorse / May 15th, 2016

Thirty years have passed since America’s last major tax reform, and any attempt at an encore will face huge policy and political hurdles. That was the blunt overview from Jason Furman, chairman of President Obama’s Council of Economic Advisors, in a speech early this year.

On the bright side, Furman said there was “increasing agreement that we can get additional revenue while improving efficiency through broad-based reductions in tax expenditures for those who derive outsized benefits…under the current system.” Putting it more simply, those who reap the richest rewards should be first in line when the tax reformer cometh. It’s a fairness argument, and Furman claimed it had won the minds of former Council chairs Martin Feldstein, Glenn Hubbard and Greg Mankiw.

Congress should follow their lead and start with the fairest, kindest tax reform of all: a stepped-up timetable for minimum required distributions (MRDs) from tax-deferred retirement accounts. It would bring billions into the Treasury by directly raising certain incomes; could reform be any kinder?

Recall that Furman used the phrase “outsized benefits.” Tax-deferred retirement accounts offer the same breaks to everybody: pre-tax contributions, untaxed investment growth. High-income workers take more advantage, but that’s to be expected. The real outsizing flows from minimum distributions. 

To learn how it happens, let’s look at the role of MRDs and…

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