Monday, May 11, 2009

Wow... What a Huge Difference

According to Robert Samuelson:
  • Grandstanding: Promising to close loopholes that reduce the amount of taxes multinational corporations pay.

  • Substantive Policy: Promising to close loopholes that reduce the amount of taxes multinational corporations pay, while simultaneously cutting the corporate tax rate.

Samuelson makes some valid points in his column, although whenever there's an area of doubt (e.g., "Whether Obama's proposals would create any jobs in the United States is an open question") he draws an inference in favor of corporations ("But many experts believe his proposals would actually destroy U.S. jobs"). The argument that I find more convincing on this front was from Robert Reich, that this may be a sleight of hand to further the cause of a national healthcare program.

The biggest flaw of Samuelson's piece is his conflation of the complexity of the tax system with its overall fairness. Samuelson correctly observes that the corporate tax code (like every other tax code in this country) is bloated and complex. A case can certainly be made for tax simplification, and for Samuelson's idea of closing loopholes while simultaneously bringing the nominal tax rate closer to the effective tax rate. But Samuelson fails to explain how you would do that without bringing about an effective tax increase on those companies best able to exploit existing tax loopholes, the two thirds of corporations that presently pay no federal taxes and the multinationals who exploit tax havens to pay a much lower effective rate than their domestic competitors.

Samuelson sidesteps the issue that, even with a lower corporate tax rate, the effect of his "substance over grandstanding" would be much the same as Obama's - higher taxes on multinationals, with the same potential downside. If the argument boils down to a few percentage points one way or the other, Samuelson's argument seems less like an introduction of substance into the debate and more a matter of splitting hairs. Does Samuelson truly believe that the benefit of corporate tax loopholes is distributed evenly to all corporations, such that their reduction accompanied by an overall tax cut won't result in equal or greater distortion than the status quo? If so, can he make that case?

I personally very much favor tax simplification, as it makes it much easier to do your taxes, figure out how much you're paying, and how much others are paying, and makes dubious loopholes more obvious. That's not to be confused with advocacy of a flat tax; simplicity is but one factor to consider, and the end goal should be a just tax system.

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