Tag Archives: taxes

Tax Reform and Legislation

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Business CEOs want tax reform.  They’re right, even though to an extent their wish is self-serving.  Or because of that—Adam Smith’s invisible hand, and all that, where every economic actor seeing to his own self interest aggregates to the benefit of all the actors, including those not party to a particular arrangement among particular actors.

Which brings me to a (not very) tangential point regarding a remark by Business Roundtable President & CEO Joshua Bolten regarding target tax rates:

15% would be terrific….  But it doesn’t have to end up at 15% for Business Roundtable companies to be happy about it.

To which Suzanne O’Halloran, the Reuters author of the piece at the link added

It just needs to get done.

The point is this: it doesn’t have to “get done;” tax reform legislation doesn’t have to get to 15% (or my 0%) in one fell swoop.  Reduce the rates significantly today, taking what’s actually politically possible given the timidity of so many of our politicians and how deeply so many are in with special interests wanting this or that subsidy or credit or loophole.  Come back tomorrow and get more.  And the next day, until the goal is reached.

No piece of tax legislation need be taken as the final word; it’s all interim compromise that moves the ball toward the goal.

This principle applies to health care reform and to health care coverage plan reform, too, as it does to all legislation, but especially legislation that seeks to implement large changes or to modify large sectors of our economy.

Tax Incentives and Taxes

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New York City is offering almost $10 million in tax breaks to get Aetna Inc to move from Connecticut to Manhattan, and this is in addition to $24 million the state is offering.

It’s a good deal, for Aetna, but it’s not a good deal for the people of New York City, or for the citizens of New York State or for the citizens of the United States.  The reason is hinted at by Anthony Hogrebe, Senior Vice President of Public Affairs for the New York City Economic Development Corporation:

It’s actually the kind of investment that we want to make in the larger healthcare and life sciences ecosystem[.]

It’s about government picking winners.  It’s also about using the tax code to influence business decisions and otherwise to execute social engineering.

Hogrebe actually has illustrated the crying need we have for serious tax reform, which must include eliminating loopholes, subsidies, credits, whathaveyou in our tax code as well as moving to a low, flat income tax for individual citizens and a similarly low, flat tax (if not eliminating it altogether) for corporations.

One beneficial outcome of such reform is that businesses, including Aetna, could locate or relocate to this or that locale based on the business usefulness of being there rather than on how much money taxpayers could be dragooned into paying the business for locating there.

Imagine that: businesses making actual business decisions, rather than decisions that Government wants them to make.

False Premise

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Budget mavens, politicians, and the NLMSM have one regarding our national tax code.  The Senate is considering a budget that sets an outer bound on the size of Federal tax cuts.

A budget with a tax plan that is revenue-neutral would effectively pay for itself, meaning any reduction in tax rates would be offset by reducing breaks or other revenue-raising measures.

No.  “Revenue neutral” must also consider what’s done with the revenue collected.  Revenue neutrality can be achieved, also, with sufficient spending cuts so that revenue collected meets or exceeds spending outflows.

Additionally, there is an underlying assumption that is carefully ignored by the politicians, budget mavens, and the NLMSM.  That is that the Federal government needs the revenue collected.  None of these worthies deign establish that need.

Prioritize, Guys

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President Donald Trump’s national infrastructure plan centers on glorified seed money directed to the localities looking to improve/build out their infrastructure.  The idea is that the locals know their needs best, those needs should be funded primarily locally or from within the nation’s private economic sector, and the building out will aggregate into a vastly improved national infrastructure—real bottom up development, with a little help from the Feds.

To that end, Trump is going to propose $200 billion in Federal spending be committed to a total $1 trillion infrastructure development collection of projects (OK, considerable help).

Right now the dynamic is: come, ask for a whole lot, bang on the table, have your economic studies showing the tens of thousands of jobs that will be created, have your regional study saying this will transform America, bang on the table some more, hire some lobbyists and you get money.  We’d rather have people come and say, “Listen, we’re chipping in this much, give us this little increment and we can make this thing happen.”

Naturally, the locals are getting their knickers twisted.  The ones with the biggest projects

say that local cost-sharing and private financing efforts would fall well short of making up for sharply reduced federal funding.

Nonsense.  You don’t get to freeload off Uncle Sugar, anymore.  Project leads in Chicago or Dallas don’t have a claim on the (tax) money of the good citizens of New York or California, and under the administration plan, they won’t be allowed to exercise their false claim to OPM.  New York and California will be able to keep their money for their own local projects.

This is an example of the deer in the headlights response of folks so used to the Government teat that they can’t conceive of better alternatives [emphasis added]:

Republican New Jersey Governor Chris Christie and Democratic New York Governor Andrew Cuomo have said they expect the federal government to cover half the cost of the Gateway project, which also includes bridges and track improvements.

“There’s no people or economic activity in that region that could possibly cover the cost of that?” said the administration official, when asked about a recent appeal by Mr Cuomo for federal aid for the project. “I think that’s a tough sell, would be my response.”

The suggestion that New York and New Jersey could pay their own way on the project…shocked some of the tunnel’s advocates.

Prioritize, guys.  On what are you spending your citizens’ money that you think is more important than your Gateway?  Say that out loud, so your citizens—your constituents, your bosses—can hear you.

Corporate Taxes

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The US has one of, if not the, highest tax rate on businesses in the world, at 35%.  As a result, our internationally operating businesses book their profits in their overseas jurisdictions and leave those profits there.  This much is well known.

Republicans want to lower the corporate-tax rate and let companies bring future global profits home without paying US taxes on top of foreign taxes. They are searching for a way to do that without giving companies an incentive to move more operations and profits to countries with far lower taxes.

Or so they say.

Republicans seem to be moving toward gerrymandering our corporate tax law even further, with the claimed goal of encouraging our businesses to repatriate their overseas profits.

As part of that overhaul, Republicans want to exempt foreign corporate income from US taxes to a large extent.  …  The 35% rate would come down and the minimum rate would be set below the new U.S. corporate tax rate.

The rationale for such a “minimum tax?”

A minimum tax would act as a “safety net” against companies trying to pay little or no tax on some foreign income, said Ed Kleinbard, a tax law professor at the University of Southern California.

On the other hand,

The countries that use tax systems Republicans want to emulate allow their home companies to bring back cash with little or no tax. They use a variety of rules to prevent companies from seeking to pay less tax by moving operations or profits abroad, but generally don’t have minimum taxes on active foreign profits.

But this misses the point.

And

The original House GOP plan to address foreign profits and prevent erosion of the US corporate-tax base was border adjustment….

This misses a separate point.

The first point: lower our corporate tax rate to the lowest in the world.  The Trump administration’s proposal of a 15% rate or House Speaker Paul Ryan’s (R, WI) proposal of 20% would come close to that (only Ireland’s 12.5% rate would remain lower).  Or eliminate corporate income taxes altogether, say I; a business’ tax bill is paid, in the large main, by the business’ customers anyway in the form of higher prices—and the final customer is the American consumer, who would benefit from lower prices.

Either of these would not only disincentivise our businesses from leaving their profits overseas, they would reverse the flow: foreign businesses would flock to set up shop in the US because of the tax advantages they’d obtain—the same advantages that currently encourage our businesses to set up “over there.”

The second point: it isn’t the government’s money; there is no legitimate “corporate-tax base” to erode.  There wouldn’t even be a drop in revenue to the Federal government: the ensuing flourishing economy would generate more revenue for the government than any revenue reduction from lowering or eliminating the corporate income tax.

And: it isn’t gerrymandering to simplify and lower the corporate tax rate, nor is it gerrymandering eliminate the tax rate altogether.  There isn’t any need to play games when so simple a solution is, or should be, so easily implemented.