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How to reform the tax system | The Economist
- AI is expected to generate significant wealth returns accruing primarily to capital owners, creating pressure for future tax systems to rely more heavily on consumption taxes and capital levies, with the U.S. anticipated to undergo the most substantial structural changes due to its current lower consumption tax levels.
- Policymakers are forecast to address the limitations of the current tax system, which is viewed as anti-growth and incapable of generating sufficient revenue, by prioritizing the taxation of scarce land and increasing the tax burden on billionaires and large capital gains while potentially moving away from tax system simplicity as AI tools enable more aggressive tax optimization.
- The outlook predicts that attempts to implement wealth taxes will likely fail due to the high mobility of billionaires and a tendency for countries to abandon such measures, noting that theoretical economist-led reforms rarely succeed in practice and that wealth taxes are often perceived as property expropriation.
- Specific inefficiencies in the current regime include the undertaxation of very large returns alongside the overtaxation of normal returns, suggesting that reforming existing capital gains taxes may be a more effective starting point than introducing new tax classes, though unchecked redistribution through the tax system without spending reforms is expected to have no natural limit.