The Obama administration is now proposing to simply the corporate tax code. As the NYT notes:
President Obama will ask Congress to scrub the corporate tax code of dozens of loopholes and subsidies to reduce the top rate to 28 percent, down from 35 percent, while giving preferences to manufacturers that would set their maximum effective rate at 25 percent, a senior administration official said on Tuesday.
Mr. Obama also would establish a minimum tax on multinational corporations’ foreign earnings, the official said, to discourage “accounting games to shift profits abroad” or actual relocation of production overseas.
There is a strong theoretical case for tax simplification across the board. So much of what constitutes our corporate tax code is a dense network of tax expenditures, de facto transfers delivered through the tax system. The same could be said of the tax code more generally.
But the proposal, even in its initial rollout, should raise concerns. The decision to set differential rates for manufacturers reveals that there is no principled objection to using the tax code as an instrument of industrial policy. One might predict that even if this proposal made it through Congress as proposed in an election year (what are the odds?), members of Congress regardless of party would simply take away expenditures at time 1 so they could sell them back at time 2.