The Corner

Economy & Business

A 15 Percent Corporate Tax Rate Would Be Great

The Trump administration has released its guidelines for major tax reform. My quick sound-bite opinion of the plan may go something like this: The president’s tax reform is more supply-side and less protectionist than I thought it would be. Also, the president is serious about his commitment to grow the economy but oh so silent on spending cuts.

Jason Fichtner, Adam Michel, and I have recently published a short paper about getting to true tax reform in 2017. With that in the background, here are a few thoughts on the few details we have:

Cutting the corporate tax rate from 35 percent to 15 percent is a good move, which was long over due. While the rest of the world has been cutting its corporate tax rate, the U.S. has fallen asleep at the switch and is now widely out of sync with international competition at the detriment of economic growth and jobs.

The move to corporate territorial tax system is great. Japan and the United Kingdom have done the same thing successfully and recently — as have most of our competitors in the past. It is about time we do the same. It will reduce the incentives for corporate inversions and many other forms of tax avoidance. In addition, companies will have an incentive to bring their outside income back to the U.S. if they wish to.

I am glad that the administration has decided not to adopt the destructive border-adjustment tax provision included in the House Republican Blueprint. The proposal was divisive and was getting in the way of tax reform in the name of revenue neutrality. The best way to address concerns about the debt and the deficit is through economic growth, the end of special-interest deductions, and spending cuts. That being said, we should stay vigilant because bad ideas never die.

I don’t like the repatriation tax because that income earned abroad has already been taxed but I understand the political value of such a move. It won’t, however, go very far in addressing deficit-neutrality concerns.

Good for the president that he wants to get rid of the Alternative Minimum Tax and the Death Tax. 

I like the idea of simplifying the individual tax code by moving away from seven tax brackets. The president would like to have three: Thirty-five percent, 25 percent, and 10 percent.

I am wary of kicking more people off the tax rolls by doubling the standard deduction even if it makes filing taxes easier for a lot of people.

The end of the Obamacare’s 3.8 percent investment tax is a good move and so is the call for getting rid of deductions like the state and local tax deduction.

I am not fan of carving the tax code with family giveaways. They create distortions and do not grow the economy.

I wished the president would also move to a territorial tax system for individuals. Cross-border taxation is the source of many bad tax rules like the idiotic FATCA.

Finally, I am not concerned about the loss of revenue from the corporate tax cuts (Chris Edwards has written about this). However, I am concerned about the fact that the president has given repeated signs that he is not serious about reducing spending — entitlement spending in particular. In addition, President Trump has a long list of stuff he would like to spend money on such as a border wall, infrastructure, and defense. That’s too bad.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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