The Case for Corporate Tax Reform

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"The Case for Corporate Tax Reform"

Earlier today I was trying to say something intelligent about the Obama administration’s corporate tax proposals that wouldn’t require me to obtain detailed knowledge of the Obama administration’s corporate tax proposals. So I said that it seemed to me that the logic of these proposals implied that we should do a bigger, broader reform of the corporate income tax aimed at closing a wide variety of loopholes and deductions in exchange for lowering the headline rate. Ezra Klein points out that the administration has smart guys like Jason Furman working for it so they’re aware of this:

Jason Furman: Marc, you should understand that today’s announcement is a down-payment on the President’s overall tax agenda. As he said in his remarks today, “the steps I am announcing today will help us deal with some of the most egregious examples of what’s wrong with our tax code and will help us strengthen some of these other efforts. It’s a down payment on the larger tax reform we need to make our tax system simpler and fairer and more efficient for individuals and corporations.” That said, the proposals the President made today would start to simplify the tax code. This includes the President’s proposal to reward companies that create jobs in America – which would make the research and development tax credit permanent, adding more predictability and stability to the tax code because companies would no longer have to worry about whether or not the credit would expire or continue.

Specifically on the corporate tax front, during the campaign Senator John McCain (R-AZ) spent a lot of time praising the low corporate tax rates of Ireland. This is a fair but, but the Irish corporate tax code has many fewer available deductions and credits than does the American system, so they wind up raising more money from corporate taxes than we do:

corporate_taxes

A broad corporate tax reform—perhaps specifically modeled on the Irish system, perhaps not—would be good policy that you could envision achieving bipartisan support. At the moment, the administration is pushing its two big “mandate” items—health care reform and a broad overhaul of energy policy. But if you’re hoping to have an administration that lasts eight years without running out of ideas, I think this is an excellent Year Three or Year Five policy initiative. Ezra points out that “tax reform is an important issue, but it’s never the main crisis, and so no one quite wants to risk political capital on it.” But “never” is a long time. I think there’s actually plenty of time to move on to this issue once the administration sees what it can get on health and energy.

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