December 7, 2017 / 2:04 PM / 2 years ago

Nobel economics winner says Trump tax plans spur inequality, tax avoidance

STOCKHOLM (Reuters) - The U.S. tax overhaul supported by President Donald Trump and the Republican party will increase inequality and opportunities for tax avoidance, Nobel economics prize-winner Richard Thaler said on Thursday.

U.S. economist Richard Thaler, of the University of Chicago Booth School of Business, speaks during a news conference after winning the 2017 Nobel Economics Prize in Chicago, Illinois, U.S. October 9, 2017. REUTERS/Kamil Krzaczynski

Trump hopes the biggest tax reform since the 1980s will slash costs for businesses and boost growth. Critics say the plan mainly benefits the rich and corporations.

“If we concede that one of our greatest problems is rising inequality, a tax reform that has the primary effect of increasing inequality seems to be misguided,” Thaler told a news conference while in Stockholm to receive his Nobel prize.

The proposals also leave ample room for tax avoidance, particularly through so-called “pass-through” businesses, he said.

“That looks to me like an invitation for lawyers to devise new ways of getting around taxes,” said Thaler, who won the 9 million crown ($1.07 million) prize this year for work on how human nature affects supposedly rational decision-making.

Taxes on pass-through companies’ income are paid by owners in their individual returns and are currently higher than corporate taxes.

A flat tax with no exemptions would be a better option, said Thaler, who is professor of behavioral science and economics at Chicago University.

“There is a special deal for private jets. I think the people who are using private jets are not the ones in most need of a tax break,” he added.

The House of Representatives and Senate have differing plans on tax reform which now have to be reconciled into a single bill that could add $1.4 trillion over 10 years to the $20 trillion national debt.

Thaler said Britain also faced a large bill for leaving the European Union.

“Healthcare will not become free because of all the money that Britain gets from leaving the EU. Instead I think there will be a price to pay,” Thaler said.

“I think it would be irresponsible to leave the EU without at least giving parliament, if not the people, a chance to vote on something where they have an idea of what the terms are.”

Reporting by Simon Johnson; Editing by Niklas Pollard and Matthew Mpoke Bigg

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