Longtime readers know that I favor a simplification of the tax code, for both individuals and corporations. Working as an actuary inside life insurance companies, I saw the complexity of accounting with up to seven accounting bases running at the same time.
Let me suggest one very simple modification to the tax code — let the IRS tax corporations on their illustrated income, with GAAP income as a minimum. All other tax preferences are abolished. The idea is this: corporations want to show shareholders how successful they are. The basis that they choose to use to show how successful they are is directly applied to taxes.
This would have one of two effects: either companies would stop illustrating income greater than GAAP, and GAAP would become more conservative, or companies would start paying more taxes.
As for private equity, they could not disclose changes in unrealized capital gains as part of their returns without being taxed on it. Alternatively, we could consider a 15% of book value as imputed income tax, with a true-up when the fund is liquidated.
As for Buffett, let him retract his statements about increase in book value, lest BRK be taxed on it.
And mutual funds and hedge funds, they are corporations also — tax them on total returns. Illiquid investments should be assumed to earn 15%.
The idea here is to strip away all tax deferral, and force everyone to pay taxes each year — this will work a lot better than the Alternative Minimum Tax.