Monday, September 29, 2008

The Pony in the Taxes

I always get this warm feeling when people I respect come up with similar ideas to mine, particularly when they're solutions to widely known problems. Yglesias just did that with his post on Irish corporate taxes. It's a common complaint among corporate types and the pundits who argue for them that corporate taxes are too high. As those who watched the presidential debate Friday noticed, while Sen. McCain held up Ireland as an example of a successful (albeit going into a recession) Western nation with low corporate taxes, Sen. Obama noted that the actual taxes paid by corporations in the U.S. are similar due to loopholes, subsidies and other tax breaks.
For about a year now I've had this notion of eliminating every tax break, loophole, subsidy or other form of a tax cut that's not called a tax cut. At the same time corporate taxes would fall dramatically across the board. No one gets left out and a clear tax rate and tax code would transform the debate over corporate incentives. Yglesias seems to have a similar notion as well but believes that a simple universal tax cut wouldn't accomplish its aims of boosting economic growth while increasing tax revenues.
Such an idea is closely related to the flat income tax idea. Both would simplify the tax code dramatically (reducing the paperwork and thus making the IRS more efficient) while giving a clear tax rate to everyone. All the loopholes, deductions, tax havens, capital gains breaks and other forms of tax avoidance would close while the tax rate for all would, theoretically, come down.
Of course, both Yglesias and I know that such a proposal is a magic pony. Corporations and the ultra-wealthy want those loopholes. It makes for a great talking point as members of either party are typically backed by such people. Lobbyists and congressional members can argue that the rich are taxed too high despite all the loopholes that lower their actual taxation to a generally fair level. Thus getting a bill passed that called for such a reform of the tax code would never happen. It probably wouldn't even make it to a sub-committee meeting.
Hence the problem with great ideas like these. They sound wonderful but enacting them is nigh impossible due to the nature of how legislation is passed. It's unfortunate but that's the reality of things.