The country needs a very different type of tax reform today than it did when Congress passed the Tax Reform Act of 1986, according to former Treasury secretary Lawrence Summers.
"There are a number of aspects about the current context that stand out as quite unique -- very different from where the world was in 1986 and at most other moments when tax reform has been a prominent area of work," Summers told the annual conference of the National Tax Association last week in Providence, R.I. Diane Lim, chief economist for The Concord Coalition, attended the conference and discusses Summers’ views in a new blog post.
In contrast to the full-employment economy of the 1980s, Summers said, the economy is now constrained on the demand side. He also noted that income distribution is becoming considerably more unequal. Another factor: The aging of the population and other trends point towards a substantial increase in the size of government over the next 20 years.
Summers urged policymakers to put more focus on three areas: Tax policies that more effectively promote aggregate demand and employment, taxes that discourage behaviors that generate social costs, and tax increases on the financial sector.