April 12, 2026

Macroeconomists textbooks normally consider two major choices that could be distorted by taxes. Viewed in isolation the major components of US tax structure are not optimal, in the economic efficiency sense. But focusing solely on the possible inefficiencies caused by the income and savings/investment tax structure in isolation is highly misleading. Over the years the government has added features to the tax code that allows the taxpayers to approximate an optimal consumption tax structure. The federal government has a remarkably straightforward way to accomplish this and offers two remarkably similar alternatives, an IRA or Roth-IRA account. The private sector as developed strategies that convert the taxation of a saving/investment income stream into the equivalent of a consumption tax, The Tax Loss Harvesting , TLH. The main idea behind the TLH program is to match taxable income on specific investments with losses and hopefully completely offset the tax liability generated by the taxable income. Our calculations suggest active TLH programs have a difficult hurdle to overcome . The numbers are much more favorable to the TLH strategy embedded in broad based ETFs such as IVV.

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