By Drew Pierson

WASHINGTON (MNI) – Reducing income inequality and balancing the
federal budget should be priorities for the United States, both of which
could be accomplished by changing the tax code, OECD officials said
Tuesday.

“It’s good to worry about Europe … but it’s also important to fix
America’s problems,” said Richard Boucher, deputy secretary-general of
the Organization for Economic Co-operation and Development.

Boucher held a press conference with U.S. ambassador to the OECD
Karen Kornbluh following the release of the biennial OECD U.S. Economic
Survey. The report evaluated the state of the tepid U.S. economy and
offered recommendations for how to fix it.

“The unequal tax treatment of income from different asset classes
increases inequality in some cases and distorts the allocation of
capital,” the report said. “Equalizing the effective tax rates on
debt-financed corporate investment and on housing at the higher rate on
equity-financed corporate investment while simultaneously lowering the
corporate tax rate would reduce income inequality and improve the
efficiency of investment.”

Eliminating tax deductions, particularly those for upper-income
earners, would also help eliminate growth-reducing distortions,
according to the report.

“A comprehensive approach to limiting tax expenditures that
disproportionately benefit high earners is needed, for instance by
limiting the marginal income tax rate at which deductions (such as for
charitable donations) may be claimed and exclusions (such as for
employer-provided health-insurance cover) permitted to 28%, as proposed
in the Administration’s FY 2013 budget,” the report stated.

Boucher said the OECD did not factor political palpability for some
of its recommendations, which included, for instance, an increase in the
gas tax.

But politics are one of the chief obstacles to continued growth
that the report sees in the U.S., with the looming “fiscal cliff” at the
end of 2012 from the expiration of the Bush tax cuts, as well as
automatic spending cuts that are due to take effect.

The report recommends continued, long-term efforts to balance the
budget that don’t immediately disrupt the U.S. recovery in the short
term, and urged lawmakers to find a compromise before the end of the
year.

Besides changes to the U.S. tax code, the report also recommends
increased federal funding for research and development programs, as well
as education to reduce income equality and spur growth.

“What this report says is that this [education funding] has long
been the key to economic success,” Kornbluh said.

–Drew Pierson is a reporter with Need To Know News In Washington

** MNI Washington Bureau: (202) 371-2121 **

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