Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
2009 Erwin N. Griswold Lecture Before the American College of Tax Counsel:
Rethinking the Advantage of Tax Deferral
I want to thank the officers and Board of Regents of the American College of Tax Counsel for inviting me to give this lecture. It is a great opportunity to think more deeply about some ideas that have been with me for some time...
It has been more than ten years since I last spoke to a group of tax lawyers. In 1997 when I delivered the Woodworth Lecture in the Ways and Means Committee room, my theme was that it was “increasingly difficult to maintain that the tax base for capital income is even an approximate measure of true economic income from capital.” In an overly dramatic flourish, my title, Saving the Income Tax, made clear my belief that it was imperative that “realization plays a less important role in the timing of both income and loss.”
I suggested that the first step to achieving an approximate match between taxable and economic income was to require mark-to-market for tradable securities, most debt instruments, and their derivatives. I recognized such a proposal, particularly if accompanied by elimination of the special treatment for capital gains, would not in itself engender a great deal of support or even interest. I believe, however, that mark-to-market would make it more feasible to modify those elements of our income tax which lead to over taxation of income from capital. Thus, full loss offsets, elimination of the corporate level tax for publicly traded companies, and inflation indexing should be easier to achieve in a mark-to-market system. If so, the tax treatment of income from capital would certainly be fairer and more efficient and not necessarily any more burdensome overall.
*Professor, Harvard Law School