Plutocratic or Conservative Tax Reform?

The current business tax code was designed by the best connected and paid lobbyists. It makes no economic sense. It hands out twice as much in subsidies as it collects in revenue according to Lee Sheppard, one of our most perceptive tax experts. And most of the legislative proposals to change it would only increase the subsidies and budget deficits. For example, the Republican leadership is pushing what they call a "territorial tax" that would essentially exempt from U.S. taxation any profit multinational corporations claim they earned overseas. Talk about a job-killing tax! It would add even more incentives for multinational corporations to shift jobs and profits offshore and put domestic companies against which they compete at a real competitive disadvantage because they would have to pay taxes the multinationals would avoid. That's a plutocrat's proposal, not a conservative one.

While those who profess to believe in the tax-cut theology control Congress and are dependant of the plutocrats to fund their re-election campaigns, there is no chance of rational economic policies. If they were true conservatives, they wouldn't pick winners and losers through the tax code. They would design a simple tax code with a lower rate which might allow us to use fiscal measures to stimulate the economy now that monetary policy is about out of tricks. Several suggestions have been made but ignored by those in power: Adopt a unitary accounting system, which is what the multinationals use themselves for purposes of investment decisions and apportion their worldwide profit by, for example, sales or, more traditionally, by where their sales, property, and personnel are located. Alternatively, we could treat shareholders the way employees are treated. The corporation would withhold a certain percentage of the profits, pay them to the IRS and issue W-2s or 1099s to the shareholders who could then use them to claim a credit against their taxable income. Rates could be much lower and tax evasion curbed.

In the short run, the Treasury should continue to try to close loopholes, even though it might disrupt the plans of those who planned to use them. For example, it could, by a simple change in regulations, eliminate carried interest whereby hedge fund operators convert ordinary income to capital gains. But those who use that loophole are certainly aware that it has been attacked as an unwarranted subsidy. In the long term, if things get desperate enough, perhaps those in Congress will be willing to turn their backs on their campaign contributors, listen to the voters, and pass some real tax reforms. But don't hold your breath.