From Bloomberg News, via Instapundit.
New York Representative Charles Rangel said he’s revising his tax overhaul proposal to reduce U.S. corporate tax rates to 28 percent, down from the current rate of 35 percent.
[...]
Rangel, 78, said the reduction would be achieved by targeting special-interest provisions that favor some industries and companies over others.
The essence of tax reform is that you get rid of deductions, but apply a lower overall tax rate in order to collect necessary revenue in a less painful, less distortionary way. The article is short on details, but it sounds like Rangel’s proposal is intended to be revenue neutral or a slight net tax increase. Naturally, I’d prefer revenue neutral, if not a slight tax cut, but this kind of tax reform should be good for the economy, and much better tax policy than I expected from a Democratic congress with Obama as President-Elect.
There’s a whole list of issues I disagree with Rangel on, starting with his idiotic proposal to bring back the draft, but I have to give him credit when he gets something right. If only Rangel would apply the same tax reform logic to personal income taxes, where he’s instead calling for higher marginal tax rates (even higher than Obama has proposed), and where there’s a laundry list of new proposed deductions and credits.
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I guess you could say that Rangel is on the right track but my idea of a perfect corporate tax rate is zero. If you want to tax people, do it directly instead of sticking a corporate tax collector between the tax payers and the government to try to hide the fact that it’s the corporations’ customers who are actually being taxed.
It’s primarily a hidden tax on shareholders, but the deadweight loss does fall on customers and employees as well. I’d like the total tax on investment income to be no more than the total tax on ordinary income, which you could do by taxing dividends and capital gains as ordinary income and setting the corporate tax rate at zero.
That’s not going to happen any time soon, but I’d like this to be more of a glass-half-full post. I’ve been expecting Obama to eliminate corporate deductions without offsetting rate cuts (based on what his economic advisors told the Urban/Brookings Tax Policy Center), and Rangel’s proposal sounds like a huge improvement over that and a significant improvement over the status quo.
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