There are only a few OECD Member countries with a lower tax take than the United States. Nonetheless there are a number of improvements that could help reduce the distortions that taxation creates in the economy and so boost long-run economic performance. The most noticeable gains could come from reforming the taxation of the income from capital. Savings are not always allocated to the area where they have the highest return, as there are large variations in the tax on capital income depending on the sector in which it is invested and the financing instruments that are used. In addition, taxation of capital income favours present over future consumption with a negative impact on savings and capital accumulation. In the past, a number of proposals have been made to reduce the tax burden on saving, by replacing the income tax with a consumption tax. While in many ways this would be the best approach, it is would represent a major change in a system that has evolved gradually ...
