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Tuesday, January 23, 2007

 

abolish the corporate income tax http://www.washingtonmonthly.com/archives/individual/2007_01/010604.php

posted by Aziz P. at Tuesday, January 23, 2007 permalink View blog reactions
Kevin Drum notes that the age of conservative tax revolt is ending, heralded by the last six years of profligate spending and massive deficits under Republican rule. Fiscal conservatism is dead, at least as far as conservatives go.

It's clear that taxes must go up if we are to meet the challenges of the more dangerous world of the 21st century. We need a larger army with better peace-keeping and nation-building training; we need national healthcare; we need to meet the challenge of global warming (which as Al Gore just said to a cheering crowd in Boise, only lacks political will, "and political will is a renewable resource.")

The best way to raise revenue is probably some kind of VAT, but the regressive nature of such consumption taxes would have to be addressed.

Of course, introducing a VAT would be a huge political challenge, so as part of a grand bargain to make it more palatable, Kevin has the novel idea of pairing such a policy with abolishing corporate income taxes:

it doesn't raise all that much money any more (less than 2% of GDP); it's by far the biggest source of tax complexity we have; it mostly gets passed on to consumers anyway; and it's the foundation of all corporate welfare. Take away the corporate income tax, and presto! No more tax breaks for special interests. K Street would be decimated.

Consider this deal: The corporate income tax goes away. It's replaced by a VAT plus an increase in capital gains and dividend taxes to the same level as the tax on income. (Added bonus: the whole "double taxation" argument goes away since corporate profits aren't taxed in the first place.) And the whole thing is used to fund national healthcare (along with the payroll taxes and general fund revenues that are already dedicated to healthcare). States could be encouraged to follow suit by agreeing to pick up the Medicaid costs of any state that kills its own corporate income tax.

Big business ought to love it. Their income taxes go away, and with it whole platoons of their accounting departments. No more relocating corporate headquarters to Aruba! Healthcare also goes away, which promises to save them both money and hassle. The replacement tax, a VAT, is easy to administer and is directly passed on to customers, much like a sales tax. Every business would be on a level playing field, regardless of size or industry.


Even if there's some huge flaw to this plan - and I am sure that a pro-business conservative will be along shortly to educate us why cutting taxes for big business is good but abolishing them is bad - it's exactly the kind of bold policy proposal that presidential primaries were born to enable national debates over. Since a recurring theme here at Nation-Building is that a candidate should seek transformative change, it would be nice to see someone take up this issue (it would be delightful if it were Obama, but I'm not holding my breath).


Discussion

I like the way you think. Doing away with the corporate income tax is an excellent step toward improving our tax code. I also like the idea of treating dividends and capital gains as ordinary income. While we're at it, we might as well treat all income the same.

I'm not so sure about the VAT, though (and I think you mean sales tax; a true VAT is a nightmare to administer). Why swap one tax system for another? I'd much rather see the corporate income tax abolished and personal income taxes raised.

 

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About Nation-Building

Nation-Building was founded by Aziz Poonawalla in August 2002 under the name Dean Nation. Dean Nation was the very first weblog devoted to a presidential candidate, Howard Dean, and became the vanguard of the Dean netroot phenomenon, raising over $40,000 for the Dean campaign, pioneering the use of Meetup, and enjoying the attention of the campaign itself, with Joe Trippi a regular reader (and sometime commentor). Howard Dean himself even left a comment once. Dean Nation was a group weblog effort and counts among its alumni many of the progressive blogsphere's leading talent including Jerome Armstrong, Matthew Yglesias, and Ezra Klein. After the election in 2004, the blog refocused onto the theme of "purple politics", formally changing its name to Nation-Building in June 2006. The primary focus of the blog is on articulating purple-state policy at home and pragmatic liberal interventionism abroad.