RSS Feed MenuThere’s an argument that high US corporate tax rates are not a problem because abundant loopholes lower the “effective tax rate.” (You can see it repeated in the comments on this morning’s feature post.)
But this isn’t a compromise. It’s a double whammy. High rates plus abundant loopholes = maximum economic distortion. Companies are induced to engage in complex (and costly) tax engineering. Investment is distorted and misdirected. Democrats used to recognize this. In 2004, Sen. John Kerry combined advocacy of loophole closing with a call for cutting the corporate tax rate (admittedly not by much: from a crushing 35% to an only marginally less perverse rate of 33.25%). Still, he grasped the principle of the thing. Why doesn’t President Obama?
Cforchange // May 5, 2009 at 6:57 am
Are you calling for a simplified tax plan??? Yahoo – that’s a winner!
ottovbvs // May 5, 2009 at 7:04 am
David, no one disputes the US tax system is a mess. One of the reasons for this is because business employs armies of lobbyists to make it so. You however don’t dispute that the effective rate paid by US corporations bears no resemblance to the official rate although the official rate is constantly quoted by economic conservatives. In my experience the creativity that comes into action to legally skirt tax regs would do credit to Picasso. The particular point you raised which I have to say sounded if it was picked up from a talking points release is simply wrong. US corporations as I know from personal experience have used this as a shell game to shelter overseas earnings. Some of it is used for legitimate local re-investment (to say it’s exporting jobs is a bit of an oversimplification but it’s not totally without truth) but as I commented commented elsewhere large balances are often built up, sometimes deliberately, and companies then spend a lot of time trying to figure out how to repatriate them at the lower rate.
sinz54 // May 5, 2009 at 7:56 am
ottovbvs: The point Frum was making was that closing tax loopholes should be REVENUE NEUTRAL. That is, the total tax take from U.S. corporations should not rise. Kerry suggested closing loopholes while lowering the tax rate generally.What Obama is proposing is just to close loopholes. He really wants more total revenue for the Government, not just to make things “fairer.”
ottovbvs // May 5, 2009 at 8:23 am
sinz54 wrote 17 minutes ago……..You can’t have it both ways….if you want to reduce the deficit you need more revenue….as Bartlett pointed out here the other day tax collections are at a nearly 60 year low as a % of GDP…..You just don’t agree with his program which is fine….but he’s just got elected on the basis of it so you’re going to have to live with it……Going to the stake to defend what is basically a notorious corporate tax dodge that means ordinary US taxpayers will have to cough up more is totally absurd both as a moral and political proposition…… I can’t wait for the Republicans to leap forward to defend this boondoggle…..For Obama it will be shooting fish in a barrel.
sinz54 // May 5, 2009 at 8:52 am
Ottovbvs: Why??? Who decided that CUTTING SPENDING was permanently off the table??? Who decided that we were going to have PERMANENTLY bigger Federal budgets–which had to be financed with PERMANENTLY higher taxes?Obama never said that in any of his campaign speeches, or in his debate with McCain. He kept that agenda secret until he got inaugurated.Robert Reich, who’s no conservative, said that Obama is using this to raise tax revenue to finance national health care.http://tinyurl.com/deswpvSo we’re back to “Tax and Spend” government. You’re right, I think that stinks. And we’ll reverse it as soon as the pendulum swings back our way. It may take a while. But it will.
RLHotchkiss // May 5, 2009 at 9:46 am
Here is the problem. Republicans have constantly perpetrated the myth that tax exemptions aren’t the same thing as government subsidies. They created this monster, and until they admit that a tax deduction is exactly the same thing as a grant from the government it will be impossible to reform the tax structure.
abright // May 5, 2009 at 10:49 am
Quit ducking the issue! Yesterday (5/4/2009), at the end of your appearance on NPR’s Talk of the Nation program a caller complained that he has become disenchanted with the Republican Party because of its domination by Christian fundamentalism. Instead of responding, you evaded his question by referring back to the previous caller, running out the clock, and never addressing the point. Is the power of fundamentalism in the GOP so great that you cannot even address it? I know that this problem is on your mind, but I am continually disappointed by this sort of performance. Fundamentalism is driving the GOP to the far right. People know this. It will continually thwart your best efforts at creating a big-tent party.
Neo // May 5, 2009 at 12:06 pm
When you’re operating using the “madman theory of the presidency” (the President is someone to be feared because he was willing to do anything to get his way), you really don’t have to care about the details.
barker13 // May 5, 2009 at 2:16 pm
“High rates plus abundant loopholes = maximum economic distortion.”You’ll get no argument from me! “Investment is distorted and misdirected.”Yep! (Via GOVERNMENTAL action…)Re: RLHotchkiss; 9:46 AM –”Here is the problem. Republicans have constantly perpetrated the myth that tax exemptions aren’t the same thing as government subsidies.”BINGO! Only I wouldn’t blame only the Republicans. Good luck, RL, if you expect many of the posters here to volunteer any actual philosophical let alone concrete, specific proposals for tax reform. I know… I’ve tried!(*RUEFUL SMILE*)Re: Abright; 10:49 AM –I thought we were talking taxes…(*SCRATCHING MY HEAD*)Anyway… so DAVID… any tax reform proposals?You care to give us the rundown on your philosophical beliefs concerning “fair” taxation?BILL
ottovbvs // May 5, 2009 at 2:35 pm
barker13 wrote 16 minutes ago…Barker dear boy you miss the fact that the US political system is based upon “interest” not “principle.”
kroner // May 5, 2009 at 3:03 pm
It seems like everyone is in agreement about simplifying the tax code nad closing loopholes, at least in theory, and Obama is taking steps to do that now.The only real disagreement here is how much corporations should be taxed, which is not a surprising disagreement considering it’s caught up in stated differences between the two parties’ governing philosophies. So I’m not really sure what the problem you’re trying to raise is outside of the fact that you lost the election.
barker13 // May 5, 2009 at 3:31 pm
Re: Kroner; wrote 12 minutes ago –”It seems like everyone is in agreement about simplifying the tax code and closing loopholes…”Unfortunately, I tend to doubt that.(*GRIN*)I’d do away with mortgage deductibility. Anyone else?I’d do away with the child deduction. Anyone else?I want EVERYONE to pay some federal tax on earned or even gifted income. Let’s say your 2 year old kid or niece or nephew or grandkid makes $400 for a modeling photoshoot. Let’s say that’s the kid’s sole income for the year. I want the kid to pay a token income tax. Let’s say we’re talking about a child of wealth a privilege… a trust fund baby where in 2009 each parent gifted the child $13,000 and so did each grandparent… thus… the child was gifted $78,000. I want this kid taxed on that $78,000 to the same extent you’d be taxed or I’d be taxed on income. Any disagreement there…?Anyway… just throwing some specifics out there to test your contention, Kroner.(*WINK*)BILL
barker13 // May 5, 2009 at 3:57 pm
BTW… the thing about tax law… it’s a MAJOR source of power (and thus wealth via I’ll scratch your back now, you scratch my family and friends’ backs now and my back when I’m retired) for legislators so unless they’re acting out of principle…(*CHOKING ON LAUGHTER… GAG REFLEX… SOMEONE CALL 911*)(Belay that… I’m ok now…)…the average elected official want to distort the tax code more and more, year by year, rather than move to a flatter, less complicated system with less opportunity to reward or punish behavior.Right now… as I type.. no doubt thousands of congressional employees (direct, indirect, public sector, private sector) are working on tax proposals big and small.(*SHRUG*)The Democrats are no doubt working as we read and type to further clutter the tax code. Republicans too.BTW2… Dave… David Frum… do you – either in theory or practice – support no corporate tax whatsoever?It’s my understand that in theory at least most economists will tell you that corporate taxes are illusionary in the sense that they’re simply passed on as part of the cost of doing business.Com’on, Dave… get down in the mud with us peons here on the comment thread.(*WINK*)BILL
kroner // May 5, 2009 at 5:25 pm
barker13: First it should be made clear that advocating for a less complicated tax code is not the same as advocating against every deduction, subsidy, etc, but I do think there is general agreement that they should be fewer. The main concern (and I think this is what makes it a particularly popular stance to take) is that an overly complicated tax code makes it possible to game the system. People or businesses that can afford to hire tax expertise end up dodging taxes in a way that’s often legal, but still offensive to people’s sense of fairness, since it tends to reward the wealthy and the sneaky. The effect is essentially a more regressive model but implemented in a way that’s messy and opaque.But that’s not to say that additional taxes and subsidies are never useful. They can be, especially when there are externalities that render the free market less efficient, or in cases where we as a society decide that certain outcomes should be encouraged or discouraged. Pollution taxes or subsidizing higher eduction are good examples.To address your examples, I generally agree with you, but I would take exception to the child and mortgage deductions. On the first, there is a view in our society that raising a child is not a purely selfish act, but has some societal benefit that we should all support, which is the reason for subsidizing it. It’s also difficult to use this deduction to game the system (although I know it has been alleged in the past). There’s also a case to be made that home ownership has a positive influence on our society, although that one is arguable. I’m not really sure how I feel about it.I guess what I’m saying is that I think it’s possible to have a nuanced view of the role of government and still generally favor a simplification of the tax code. I also completely agree with you that it’s something politically very difficult to do, and the blame for that doesn’t rest on any specific party, but on systemic problems in the way our government functions.
barker13 // May 5, 2009 at 7:42 pm
Re: Kroner; 5:25 PM –”First it should be made clear that advocating for a less complicated tax code is not the same as advocating against every deduction, subsidy, etc,”Understood. (*SHRUG*) Stipulated! (*GRIN*)”…but I do think there is general agreement that they should be fewer.”And via highlighting specific MAJOR tax benefits enjoyed by MOST Americans during periods of their lives I’ve attempted to get a read on how accurate your hypothesis is as compared to self-selected non-scientific polling here at NM.”The main concern (and I think this is what makes it a particularly popular stance to take) is that an overly complicated tax code makes it possible to game the system. People or businesses that can afford to hire tax expertise end up dodging taxes in a way that’s often legal, but still offensive to people’s sense of fairness, since it tends to reward the wealthy and the sneaky. The effect is essentially a more regressive model but implemented in a way that’s messy and opaque.”Agreed. Still… and here’s where I’m back to popular and widely accepted tax subsidies… take that anachronism from WW-2 employer provided taxpayer subsidized health insurance; how many of our fellow NM’ers would end the practice of tax free (tax free to the recipient, tax deductible for the business) health insurance benefits? I would. Anyone else…???* To be continued…BILL
barker13 // May 5, 2009 at 7:43 pm
* Continuing…”But that’s not to say that additional taxes and subsidies are never useful.”True. Fair enough. “To address your examples, I generally agree with you, but I would take exception to the child and mortgage deductions.”(*GRIN*) Two of the biggies! OK. Go on…”…there is a view in our society that raising a child is not a purely selfish act, but has some societal benefit that we should all support, which is the reason for subsidizing it.”I understand. I disagree… but I understand. (Not saying I disagree about “societal benefit,” I’m with you there, but I see no reason to subsidize something that will naturally occur without the subsidy.) “There’s also a case to be made that home ownership has a positive influence on our society, although that one is arguable. I’m not really sure how I feel about it.”Fair enough. Again, I understand the argument, I simply view the subsidy as unnecessary, distortive, and ultimately more about smoke and mirrors in the sense that when you feel you’re “saving” via tax subsidy chances are you’ll compensate by spending more than you otherwise might on the front (purchase) end.Bottom line, though… I’m about personal liberty and personal freedom of choice… pursuit of happiness if you will… and I just don’t feel it’s proper for society to make apartment dwellers and renters subsidize (in the sense of they’re not getting an apple to apple, orange to orange subsidy) those who choose to purchase a home.As to social policy… social engineering… I’m not all that sure that we as a society wouldn’t be better off if fewer people had less “unnecessary” space.Now obviously “unnecessary” is in and of itself a judgment call… which brings us full circle to my position that we subsidize neither homeowners over non-homeowners nor non-homeowners over homeowners.Now… working backwards… going back to a point you made..”…subsidizing higher eduction…”Actually, I’m largely against subsidizing what is jokingly nowadays referred to as “higher education.” Certainly I’m against subsidizing the liberal arts. (*SHRUG*)I believe our national education system – particularly as it seeks to steer almost all toward college – badly needs reform and “subsidizing higher education” is largely throwing good money after bad at worst… misutilization of resources at best.”I think it’s possible to have a nuanced view of the role of government and still generally favor a simplification of the tax code.”As do I.(*HANDSHAKE*)I’ve enjoyed this exchange very much. I hope others chime in. BILL