The Corner

Economy & Business

The Supply-Side Dream Team Has a Message for Republicans: Don’t Make Tax Reform So Complicated

Writing in the New York Times Wednesday morning, the dream team of supply-side economics — Larry Kudlow, Steve Moore, Steve Forbes, and Art Laffer — have a message for Congress and the president: Don’t make tax reform so complicated that you end up killing it.

They have a plan:

First, cut the federal corporate and small-business highest tax rate to 15 percent from 35 percent, which is now one of the highest corporate tax rates in the world.

Second, allow businesses to immediately deduct the full cost of their capital purchases. Full expensing of new factories, equipment and machinery will jump-start business investment, which since 2000 has grown at only one-third the rate recorded from 1950 to 2000.

Third, impose a low tax on the repatriation of foreign profits brought back to the United States. This could attract more than $2 trillion to these shores, raising billions for the Treasury while creating new jobs and adding to the United States’ gross domestic product. . . . 

Next, Republicans should abandon the so-called border-adjustable tax. A border tax is a poison pill for the tax plan: It divides the very business groups that the party needs to rally behind tax reform. Retailers like Walmart will never go along. A carbon tax would be even worse. The best way to bring jobs back to America is to simply lower tax rates now while rolling back anti-jobs regulations, such as rules that inhibit American energy production.

While they are all for it, they rightly explain that individual tax reform can wait until 2018. The priority should be on jobs and the economy. That’s why the corporate tax reform is the place to start. Not only is our system horribly punishing — but what most people fail to understand is that, depending on the study, anywhere between 18 and 60 percent of the corporate tax is actually shouldered by workers in the form of lower wages. It is a well-documented fact that “middle-class wages rise when business taxes fall,” the authors note.

Finally, let’s not forget that until recently there was actually a lot of support on the Democratic side for corporate tax reform. They suggest reactivating this support by jacking up infrastructure spending.

As part of this bill, we should create a fund dedicated to rebuilding America’s roads, highways, airports and pipelines, and modernizing the electric grid and broadband access — financed through the tax money raised from repatriation of foreign profits.

As much as possible, this bill should include private financing for projects like toll roads and energy drilling. We also favor “user pays” financing, such as toll roads, and we would oppose any Fannie Mae-type financing structure for projects that would put taxpayers on the hook for hundreds of billions in potential losses.

Using the repatriated revenue for infrastructure spending bothers me, but I can see how it would be a good move politically.

Interestingly, those who favor the Republican Tax Blueprint are already arguing that the problem with not doing it all now (which is not possible anyway) is that when Democrats are in power they may undo the smaller set of reforms. That is possible — yet I find this argument interesting because these are the same people who are willing to pay for all the big reforms in the Blueprint with a border-adjustment tax (BAT). That feature, as I have argued before, puts a structure in place that could allow large tax-rate increases, a move to a VAT, and possibly a move to a VAT with a return of the corporate tax like the Europeans have when the Democrats are in power. In other words, the worst that can happen under the Kudlow-Moore-Forbes-Laffer plan is a return to our current system — which is bad but isn’t as awful as what the BAT could devolve into.

Anyhow, the whole thing is here.


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