Elegant Simplicity: Achieving Many Goals with one Policy

via: Heritage

Question: How do we create jobs, increase economic growth, rebuild the nest egg of households, strengthen the competitiveness of the U.S. economy and increase tax revenues?

  • A. Borrow trillions of dollars and hire workers and specify that these workers must be from the United States.
  • B. Create a new industry by making carbon emissions a scarce good so that new “green” jobs can displace jobs in polluting industries. Create a complicated trading system and allowance allocation to create “administrative” jobs, jobs for lobbyists and jobs for lawyers.
  • C. Raise taxes on individuals that make over $250,000 while instituting pay caps that limit the amount individuals can earn. Redistribute the tax revenue to middle class earners through various credits to create jobs for tax professionals.
  • D. Eliminate the corporate income tax.
  • E. None of the above.
  • F. All of the above.

The answer is D. Robert Mundell, an economist at Columbia University and Nobel prize laureate, explains on CNBC why eliminating the corporate income tax is a simple, efficient way to achieve the stated policy goals.

Still skeptical? There is a growing chorus of experts across the political spectrum advocating eliminating the double taxation of corporate profits. The left-leaning Tax Policy Center (a joint project of the Brookings Institution and the Urban Institute) hosted a conference in February on the exceptionalism (and not in a good way) of the U.S. corporate income tax. Jeffrey Miron an economist at Harvard advocates repeal. A policy brief (pdf) from the Organization for Economic Co-operation and Development (OECD) details how this type of tax reform enhances a country’s competitiveness and can increase tax revenue. Robert Barro, an economics professor at Harvard and an economics senior fellow at Stanford’s Hoover Institution, says, “[e]liminating the federal corporate income tax would be brilliant.”

Not only is implementing this solution a simpler, less-costly way to achieve the goals above, it also aids in bringing transparency to the tax code in terms of who actually bears the burden of the corporate income tax. It is easy to demonize a faceless corporation and pretend that taxing this entity is somehow making “it” pay its fair share. However, the recent economic crisis brings into sharp focus the many individuals behind a corporation, from the employees to the CEOs to the shareholders, in addition to extensive and intricately connected networks of the supplier and customer chains that make up modern, developed economies. The corporate income tax is not paid by an impersonal entity. Rather, the tax burden falls personally and to varying degrees on each one of the individual stakeholders, from the worker on the line to the customer at the store. Because it hurts nearly everyone, the tax slows the whole economy and undermines our international competitiveness. Its direct and indirect effects (for example, lost opportunities to overseas competitors) make the tax particularly pernicious. It should be part of the reform that is urgently needed and called for by the President.

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