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  • John Kerry-Supply Sider?

    http://www.opinionjournal.com/editor...l?id=110004907

    REVIEW & OUTLOOK

    John Kerry, Supply-Sider?
    He admits corporate taxes are too high, but his plan would make things worse.

    Sunday, April 4, 2004 12:01 a.m. EST

    Now that he's escaped the fever swamps of the Democratic primaries, John Kerry seems to be taking economics more seriously. His new plan at least admits that U.S. corporate taxation is a problem, even if in the end he'd make things worse.

    The most pleasant surprise--even shock--is that Mr. Kerry is endorsing the idea that cutting tax rates can increase incentives to create jobs. Supply-siders have been saying this for years, much to the derision of most Democrats. (We accept their apology.) On the other hand, Mr. Kerry would cancel out most of this benefit with his increase in tax rates on individuals and dividends, not to mention with the fine print of his corporate tax reshuffle.

    The central problem here is that in recent decades most countries have been reducing corporate taxation, leaving U.S. rates among the highest in the world. The U.S. is also one of the few countries to tax companies on profits made overseas. The stopgap U.S. response has been a system of tax deferrals allowing companies to avoid paying tax on their foreign income until they repatriate it. Not surprisingly, this has locked up a pool of as much as $639 billion in capital overseas. It has also opened companies to the accusation that "Benedict Arnold CEOs," in Senator Kerry's gracious phrase, are moving jobs overseas merely to enjoy tax breaks.

    The best remedy would be to bring U.S. corporate taxes closer to global norms and restrict the scope of taxation to profits earned within U.S. borders. Decisions to move jobs abroad would then be made on the business merits, rather than on tax incentives.

    Mr. Kerry proposes something different. His cut in the corporate rate to 33.5% from 35% is hardly enough to eliminate the disadvantage faced by American companies abroad. Recognizing this, the plan allows companies whose foreign operations target foreign markets to keep the old tax breaks. But those companies producing goods or services for the U.S. market would lose their special treatment.

    There are a couple of obvious problems here. First, the effect would be a big tax increase on American companies. Effectively, this regime would give an advantage to a German BMW factory over a Ford factory located in Germany. The solution for many companies would be either to move their headquarters overseas so that they are no longer considered a U.S. company, or sell their overseas operations to competitors. The effect would be to speed up the very migration of business overseas that Mr. Kerry says he wants to stop.
    Second, the Kerry plan would make the already fiendishly complex tax code even more convoluted. As companies scrambled to increase the portion of their overseas businesses judged to serve foreign markets, the main beneficiaries would be tax lawyers.

    But perhaps the biggest problem with the Kerry plan is that it would use up a windfall that should be held in reserve to fund the transition to a more sustainable tax system. Congressional Republicans have proposed a one-year tax "holiday" so foreign profits trapped abroad can be wired home ASAP after paying a bargain-basement rate of tax. This would bring in a one-time boost for government coffers, and the revenue could offset the cost of reducing the corporate tax rate and starting a system of territorial taxation.

    Mr. Kerry has instead adopted the tax holiday idea but earmarked the money for another use--corporate welfare. His minor tax cut would be funded entirely from closing the "loophole" for foreign subsidiaries. So the money from the tax holiday would go toward a "New Jobs Tax Credit."

    His idea is that the government would pick the "losers" of globalization, those industries where outsourcing overseas is prevalent, and subsidize them. Washington would waive the payroll taxes for new hires in those industries, as well as manufacturers and small businesses. Apparently this is the best the Kerry braintrust could come up with as a way to fulfill his promise of 10 million new jobs by 2009.

    This transparent attempt at industrial policy would introduce distortions too numerous to list here. Most obviously, it would encourage companies that do not have a comparative advantage to add workers in the belief that government handouts will continue. Meanwhile, a company that was doing well and would have expanded anyway would get an additional advantage over another that is struggling to avoid layoffs. The Kerry plan undermines the principle of tax equity--that is, that two companies earning the same profits and employing the same number of workers should be taxed the same.
    If Mr. Kerry really wants to follow President Kennedy as a tax-cutting Democrat, he'd skip the corporate welfare and use all the revenue from repatriated profits to fund a bigger cut in corporate tax rates. JFK understood that the best way to promote new jobs without creating perverse incentives is to lower marginal rates. Now that he's accepted supply-side logic, perhaps Mr. Kerry will focus more on the details.
    End...........................


    Wow, $600 billion in corporate tax cuts (what Kerry USE to call Corporate Welfare), $1.7 TRILLION in NEW spending and Kerry says we are suppose to be afraid of Bush's "out of control" spending habits????

  • #2
    Kerry's plan isnt corperate welfare, corperate welfare is the millions of tax loop holes like this that leave us with huge corperate tax rates and no income. This is actually one of the few good ideas coming out of the kerry camp. The new jobs tax credit is foolish though, we need a SIMPLE tax code so people can't abuse it. that or a VAT tax

    Comment


    • #3
      Originally posted by hobomagic
      Kerry's plan isnt corperate welfare, corperate welfare is the millions of tax loop holes like this that leave us with huge corperate tax rates and no income. This is actually one of the few good ideas coming out of the kerry camp. The new jobs tax credit is foolish though, we need a SIMPLE tax code so people can't abuse it. that or a VAT tax
      There are loopholes in any legislation. To even attempt to engineer loopholes out of corporate or individual tax codes would involve legislation thousands of pages long, as the Congressmen tried to address every exception, loophole, contradiction or other anomaly. Government would be so bogged down in onerous legislation that little would be accomplished. Rather than days or weeks, legislation may take months, even years, to go from proposal, to debate, to ratification, to being signed into law. Such an especially complex piece of work as the Federal Budget would likely take three to four years to complete.
      Mens Est Clavis Victoriae
      (The Mind Is The Key To Victory)

      Comment


      • #4
        How about "any corporate entity not qualified as a charity will pay 25% of it's profits in taxes to the goverment every april 15"

        There are two ways to make something appear flawless. The first to make it so complex there are no obvious flaws. The other is to make it so simple there are obviously no flaws. The later is a much better approach.

        Comment


        • #5
          Originally posted by hobomagic
          How about "any corporate entity not qualified as a charity will pay 25% of it's profits in taxes to the goverment every april 15"

          There are two ways to make something appear flawless. The first to make it so complex there are no obvious flaws. The other is to make it so simple there are obviously no flaws. The later is a much better approach.
          Indeed, the most simple tax code is by far the most superior. This is embodied by a flat tax system, something sucessive GOP administrations and Congressmen have been advocating for many years. Against this has been the cacophony of liberal whining of how unfair this will be to the poor and middle class, and how it will aid only the rich.

          Let us look at tax cuts.:
          The poor get a tax cut - they may put some in the bank, but will largely spend it on frivolous items, not durable goods. Benefit to the economy - little or nothing

          The middle class get get a tax cut: the most likely outcome is to put it in the bank, perhaps some investment, some durable goods. Benefit to the economy - some dependent on the strength of the economy and where the spending occurs.

          The "rich"/upper class get a tax cut: the most likely outcome is investment, but also some durable goods, some luxury items. Benefit to the economy is considerable, owing to investment.

          Perhaps the most contentious tax cut, to businessess: corporations will a) buy new equipment/update existing equipment; b) invest, including with pension funds, 401K's etc., Benefit to the economy is condierable - they increase capacity, make their corporation more efficient, they contribute to the economy wih invest, their investments (usually) are beneficial to pension funds, 401K and other employee investment funds. Comparatively, businesses contribute a considerably large portion to the economy.
          Mens Est Clavis Victoriae
          (The Mind Is The Key To Victory)

          Comment


          • #6
            But 'simple' puts lobbyists and special interests partially out of business and dries up lots campaign funding. Who would pass a law like that?
            If voting could really change things, it would be illegal.

            Comment

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