In the spirit of moving close to a consumption tax base, the administration should instead push for an end to the complicated and capricious depreciation of plants and equipment. Congress has wisely allowed small businesses to write off increasing amounts for capital investments as soon as the expense is incurred. That would be equally appropriate for capital outlays by all businesses, big or small. Expensing would lose little revenue over the longer-run, because writing off more today means less in the future, and because improved investment means a larger economy and tax base. There is no justification for abusing tax policy to distort the timing of asset sales.
Smart investors realize short-term gains only when they have offsetting losses.
But the special penalty on realizing short-term gains seriously depresses turnover and liquidity, and therefore potential tax collection on trades that don't happen. In this year's initial tax skirmish, the Bush White House willingly closed its eyes to some of the worst abuses of good tax policy. Since the White House voiced no strong concern about reducing estate tax rates, it became vulnerable to the symbolism of a one-year repeal in 2010 at the expense of high tax rates, retention of the gift tax, and a new tax on inherited capital gains. Serious and lasting improvement in tax policy must first begin with a clear discussion and explanation of the ideal destination. Serious and lasting political leadership must refuse changes that do not move the country toward that destination, and that have no durability.