Why not cut the corporate tax rate to zero?
E. Thomas McClanahanThe thought comes to mind in view of President Obama’s recent plan to reform corporate taxes. It starts out well. It admits America’s 35 percent rate is a real hindrance and proposes to scale it back to 28 percent. But the plan is gummed up with well, complexicators.
Such as: Special rates for manufacturers. Even more goodies for companies engaged in “advanced” manufacturing. Then Obama wants to raise rates on companies doing business overseas, while CUTTING taxes on foreign companies operating here.
If these proposals ever became law, companies of all sorts would contort themselves until they met the statutory definition of a foreign-owned manufacturer of really advanced stuff. Meanwhile, in his budget, Obama wants to jack up the tax on qualified dividends from 15 percent to his proposed top personal rate of 39.6.
I often get calls and emails from people griping that General Electric didn’t pay any taxes. These people tend to think that’s an argument for higher rates but it’s just the opposite: You want lower rates, because then you can carve out the loopholes that GE used to avoid tax payment.
Remember the late Pat Moynihan, who observed that loopholes and rates were in a relationship that was almost immutable. When rates went up, loopholes spread through the tax code almost like a “hydraulic” phenomenon. A lower rate on a broader base is the way to go. Instead, Obama proposed a slightly lower rate with even more complexity. He simply isn’t serious.
Well, OK. Let’s be unserious. How about getting rid of the corporate tax altogether? Megan McArdle offers the idea as a thought experiment. Her biggest gripe: The corporate tax is extremely inefficient.
“[C]ompanies and rich people spend an exorbitant amount of time arranging their affairs to be lower-taxed, rather than more productive. Taxing capital once, when it hits a person, as ordinary income, would in one fell swoop eliminate most of the tax-avoidance activity that goes on in this country.”
Nor would higher corporate taxes or stiffer regulation do much to curb corporate power, if you’re into that sort of thing: “If we really hate corporate power, we’d probably want to look at the things that entrench it—like heavy regulatory burdens that are more easily borne by large, powerful companies. But this is not an argument that ever gets much traction outside of some economists, and the libertarian community. Which makes me think that the corporate income tax is largely expressive—we like policies which penalize corporations, particularly big ones, regardless of their actual effect on corporate power.”
Which may be the core problem — too many people eager to use the tax code to punish, not because it makes economic sense, but because it gives them satisfaction to do it.
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