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The New Davos Challenge

As political leaders and corporate titans gather in Davos, Switzerland, for the World Economic Forum's annual meeting, they would do well to consider how the abstract ideal of "stakeholder capitalism" can be translated into reality. The key to changing the behavior of economic and political elites alike is to change what is measured.

DAVOS – The World Economic Forum’s annual flagship meeting this year will focus on how to build a more cohesive and sustainable world. As always, the topic is timely, but also a little abstract. To help give it more concrete form, we have a few proposals to put the prevailing economic model on a better track and focus the discussion.

First, it is time to overhaul the US tax code to reduce structural wealth inequality. To that end, America should get rid of the “carried-interest” loophole. A provision that was originally intended to encourage long-term investment has become a massive tax break for financiers working in private equity and at hedge funds. Although the 2017 Tax Cuts and Jobs Act placed some limitations on this finance-friendly rule, it remains in place.

By the same token, America should do away with the “stepped-up cost basis” loophole, which has become a key way by which the rich avoid taxation when bequeathing their wealth to their heirs. As such, it has enabled the rich to become dynastic, undermining America’s ostensible commitment to meritocracy.

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