Two Postscripts on Business Taxes

by Ramesh Ponnuru

First: In response to that column, an aide to Senator Rob Portman (R., Ohio) calls to note that Portman would prefer to combine a reform of the corporate tax code with a reform of taxes for individuals. I didn’t say otherwise, just noted that he was more “willing” than most of his Republican colleagues to reform the corporate code by itself, which I think is an accurate characterization. I’m happy, though, to clarify his view.

As the column explains, neither Portman’s preferred option nor his fallback one seems very promising. A better idea is to move in the direction of a business consumption tax, or to try a smaller-scale but important reform that ends the tax code’s biases in favor of corporate debt and against business investment.

Second: A few folks on Twitter have asked whether the business consumption tax is dangerously close to a value-added tax (VAT). The main conservative objection to a VAT has been that it would replace or supplement a highly visible tax (the income tax) with a hidden one, and therefore make it easier for the federal government to raise revenue. Whatever the merits of that argument (which are disputed), I don’t think it applies to this case. A VAT that doesn’t let businesses deduct the cost of wages is a hidden tax on labor income. The business consumption tax does let them do that. It doesn’t replace the income tax; it would replace the existing taxes on businesses.

(For the same reason, the business consumption tax avoids the chief liberal objection to a VAT: that it’s regressive. Income taxes could be as progressive, or flat, or regressive, as Congress wants them to be.)

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