Tax Simplification

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.

3 thoughts on “Tax Simplification

  1. This is not “tax simplification” this is a realignment of the faults of the tax code in a way that the president prefers. An important feature of the tax simplification idea is that it will allow capitol to flow to more efficient uses, spurring growth, as opposed to flowing to politically favored sectors, spurring drag.

  2. The goals of simplification should be to actually, you know, simplify the code and to get the government out of the game of picking winners and losers, of subsidizing and restricting, through loopholes and other favorable treatments. They just can’t stop themselves from meddling, and from the notion that they know best.

  3. America is bankrupt. Governments,on all levels in America, are mostly bankrupt. What the Obama administration is trying to due is tinker with the tax code to try and stimulate more economic growth and thus wring out more wealth from the business sector. The problem isn’t the tax code. The problem isn’t even the tax system,which is of course, strangling the economy. The problem is on the spending side. Too many government employees,retired government employees and non producers. A bankrupt Social Security and Medicare/Medicaid system. Too many wars and too much military. And a National Debt that’s an albatross around the necks of the next 4 generations. Tax simplification is an oxymoron. What we need is tax repeal. This can only happen when government functions that are not specifically written down in the Constitution are dismantled and or phased out and thrown in the trash bin of history. None of this “General Welfare” and “Commerce Clause” nonsense. In the end,the answer is political not economic. The political leadership and direction must be found to put the socialist genie back into the bottle. Judging by the amount of net tax consumers in America today,that task may be next to impossible.

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