In a Letter to the Editor last Thursday, one letter writer had this to say about a Wall Street Journal op-ed, The Great Progressive Tax Escape:

[T]he problem of interstate tax competition, like the continuing bids to draw Amazon to pick a favorable second headquarters, isn’t strictly speaking a problem of high progressive taxes, as your editorial asserts. Better to view it the other way, as a problem of low-tax jurisdictions using these devices to compete in a way that erodes the tax bases of other states. That is exactly what is happening globally as well, when Ireland, Panama, Malta, etc. make rock-bottom offers to global companies to do business there. Developed states and countries cannot run governments at the discounted prices offered by these tax havens….

And yet these States and countries—developed all—do run their governments at “discounted” prices.  The resulting economic activity is how they can afford these additional “discounts.”

The plain fact is high-tax governments do not need the tax rates they have—as demonstrated by the fact that the “winning” States already have low rates and high enough revenue to pay for what those governments have been hired to do.  And they do so despite the plethora of special interest give-backs that so heavily populate even these States’ tax codes.  The high-tax States and the high-tax countries would do well to learn from these examples, and instead of whining about losing an entirely fair competition, reformed their tax codes.  Ireland—and Luxembourg, which the letter writer omitted to mention—have some of the lowest tax rates in the world, and their people are prospering.

A related and equally plain fact is that with low, flat tax rates there’d be no need to compete on who can offer the biggest tax breaks.  Such breaks have considerably less value coming on a base rate of, say, 10%, than they have at usurious rates like 35%.  Further, the base rates, applicable to all and already low, would allow businesses to locate themselves on the basis of sound business and not at all on who’s offering the most goodies.

The House passed yesterday, 227-205, its version of tax reform, and the next milestone is in the Senate.  The Wall Street Journal is referencing some special interests who are expressing misgivings about it.

Both the House and Senate bills would cut the corporate tax rate to 20% from 35%. If that overall tax rate decreases, tax credits and deductions become less valuable.

Well, of course.  Credits and deductions get their value from how much they reduce taxes for the government-favored groups of Americans for whom those credits and deductions are targeted.  With lower overall tax rates, those credits and deductions have less tax value—as any graduate of 3^rd grade arithmetic can see.

That alone would mean that nearly 300,000 fewer low-income units will be produced over 10 years, according to an analysis by Novogradac & Co, an accounting firm specializing in real estate.

That’s the claim of a special interest group. It’s also not entirely true. With the elimination of real estate-related credits and deductions, housing—and rental—prices would no longer be elevated to absorb for the realtor’s benefit those bennies.

The same logic applies to other bennies on the chopping block: preferential tax treatment for bonds used by developers to build “affordable” housing and private activity bonds, which fund hospitals, roads, nursing homes, and charter schools—and sports stadiums and other froo-froo.  These things, too, would no longer have their prices elevated to absorb for the developer’s benefit the monetary value of the bennies.

On top of that, the reduced value of deductions and credits under the plan just passed in one house and on offer in the other is a non sequitur.  Our tax code should not be used for social engineering, least of all in accordance with the personal imperatives of 535+1 politicians in DC.  The—our—tax code should be limited to funding our government; social engineering should be left to We the People in our local communities.