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February 15th, 2013 12:50 pm
A Corporate Tax “Cut” Isn’t Enough

Tim’s column on corporate tax rates is superb. But I’d go even farther.

Before I explain, I’d like to highlight this part of Tim’s column, which is right on target:

At one point Lew stated that any reform must bring in more revenue to feed out-of-control federal spending, and suggested that although America’s official tax rate is too high, the actual effective rate is “much lower.”  Senator Portman helpfully instructed him that even the U.S. effective rate far exceeds the industrialized world average.

We must also beware Lew’s other caveat above.  Liberals will attempt to exploit corporate tax reform as a source of new revenue for the federal government.  Our budgetary problem, however, is not insufficient revenues but extravagant spending, as illustrated by the fact that if we simply returned to 2005 spending levels we would have enjoyed a $100 billion surplus last year.

The deficit problem clearly is caused by over-spending. But one thing I would emphasize is that cutting corporate rates probably would not add anything to the deficit; indeed, the sort of parallel tax cut, that of cutting capital gains tax rates, has consistently resulted in greater total revenues from capital gains actually coming into federal coffers. The added economic activity really has “paid for itself,” and then some.

But, as I said, I would go farther. As I’ve written here and elsewhere before, I would completely eliminate corporate income taxes. Gone. Kaput. Finis. Nada. And, obviously, if the rate is zero, there would be zero revenues from that particular tax, so of course the “more than paid for itself” argument would go out the window.

But that doesn’t mean eliminating the tax would cost much or any revenue, total, to the feds. Indeed, it was a left-leaning, former Democratic Capitol Hill budget staffer who first suggested to me the idea of completely eliminating this tax, and he, as a number cruncher, explained that he thought it would be almost revenue neutral. Some of the “lost” taxes would be recouped immediately via higher receipts from capital gains taxes and dividend taxes (because corporate profits obviously would be expected to rise), and some would be recouped through substantially higher economic growth, and some would be recouped due to a huge rush of companies repatriating their business operations. And so on, as I’ve explained elsewhere — including some savings on the spending side due to cutbacks in no-longer-needed IRS enforcement.

If I were a politician rather than a journalist, I would make this proposal part of my platform — and dare any demagogue to criticize me for it as long as it the criticism was done in open debate.

Finally, it’s worth noting that other very smart people have pushed the same idea, including Megan McArdle, formerly of The Atlantic and now apparently of The Daily Beast.

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