Posted on 05/03/2008 10:49:40 AM PDT by The_Republican
America's tax code needs a serious overhaul. The last clean-up was in 1986, when Ronald Reagan turned away from his tax-slashing past to partner with a Democratic Congress and close loopholes, change rates, and broaden the tax base. Over the intervening decades, lobbyists have left their Gucci footprints all over the code, and our system is a bigger mess than ever -- one that should give both Democrats and Republicans pause.
For instance, America taxes corporations at the second-highest rate in the industrialized world but collects the fourth-lowest amount of corporate tax revenue. Why? Loopholes, special deductions, tax credits, subsidies, and shelters. Politically influential industries get special deals, distorting investment decisions and forcing overall tax rates higher than they need to be.
John McCain once seemed eager to pick up the reform mantle. A tough-talking conservative who wraps himself in the Gipper's legacy, inveighs against earmarks, calls himself a deficit hawk, and fought George Bush's 2001 and 2003 tax cuts, McCain seemed to be one of the few politicians in America actually eager to restore some sense to the tax system. Then he decided to run for president.
Over the course of his campaign, McCain has consistently chosen granting tax breaks for industry and wealthy donors over tackling the problem of pet tax benefits. He proposes cutting the corporate tax rate from 35 percent to 25 percent, costing $100 billion a year, but fails to eliminate a single corporate tax break. A 25 percent rate would be below the average rate of other industrialized countries and the lowest among G-7 countries by a significant margin.
But McCain does not stop there. He would let companies immediately write off all investment in equipment and technology. Companies would get an immediate up-front deduction for their investments, rather than being forced to deduct their costs over time. The change is very valuable for companies because a $100 deduction today is worth a lot more than $10 a year for ten years. For the same reason, it is very expensive for the Treasury -- to the tune of about $75 billion a year.
McCain's top policy advisor Douglas Holtz-Eakin claims that such a write-off has no long-term cost. In fact, when Holtz-Eakin headed the Congressional Budget Office, it concluded that a similar, smaller proposal cost $440 billion over a decade. Reagan tax official Ron Pearlman labeled Holtz-Eakin's claim "so intellectually dishonest it's outrageous."
In addition to covering up the true cost of its corporate tax cuts, the McCain plan has another serious flaw: Companies can use new investments to shelter profits from other parts of their business from tax. Other advocates of immediate investment write-offs, such as George Bush's tax reform panel, considered it "essential" to also eliminate the deduction for business interest. But revisiting the interest deduction raises a host of thorny problems for Wall Street, and McCain has simply ignored this hole in his plan.
For individuals, McCain proposes repealing the Alternative Minimum Tax, the parallel tax system that was intended to prevent tax sheltering but now threatens millions of middle-class families with higher taxes and more complexity. Millions of taxpayers are required to calculate their taxes under two systems -- the regular tax code and the AMT -- and pay the higher sum. Because the AMT is not indexed for inflation, it threatens more middle-class families every year.
Congress has repeatedly passed temporary solutions that exempt most of the middle class from the AMT, but McCain would go further and repeal the AMT entirely. This approach would cost $60 billion more a year than the temporary patches do, and 57 percent of that money would flow to the top 1 percent of households. McCain could have solved both the cost and fairness problems by replacing the AMT with a modest surtax on the households benefiting from its repeal, but he did not. Once again, he chose all dessert and no vegetables.
McCain's final tax proposal is doubling the tax exclusion for dependents, costing $65 billion and helping most families with children. In essence, each family would be able to deduct an additional $3,500 for each child. This means that a millionaire, who is in the 35 percent tax bracket, would get $1,225 per child, while a steelworker, who is in the 15 percent tax bracket, would get $525. Families in poverty would get nothing because they pay no income taxes, even though they pay thousands in payroll and sales taxes.
Here, too, McCain had alternatives. Liberals have suggested consolidating tax benefits for children into a simpler, unified credit that is especially beneficial to working-class families who do not receive the earned income tax credit. Similarly, "Sam's Club conservatives" Ross Douthat and Reihan Salam have suggested baby bonuses to help new families with children.
If McCain had taken these alternatives, his tax plan would still be costly but it would have had more for families and less in corporate giveaways. He could have railed with equal passion for tax cuts and for tax reform; for toughness on corporate special interests and fairness and growth for ordinary businesses and families.
To pay for his $300 billion a year in tax cuts, McCain has made only two significant proposals. He would freeze discretionary spending besides that on defense and veterans, saving about $15 billion but hurting good programs and bad, and he would eliminate earmarks, saving as much as $18 billion a year.
McCain initially claimed that eliminating earmarks would save $100 billion, but abandoned that claim after Scott Lilly pointed out that his figure included the entire Israel aid budget as well as military housing. Even the $18 billion figure is inflated since McCain now admits that some of these earmarks have value, like the ferry in the depressed Delta community he visited last week.
To pay for the rest of his tax cuts -- some $270 billion, nearly 90 percent of the total -- McCain turns to obfuscation. He promises to review a White House list of wasteful spending and a Treasury Department list of corporate tax loopholes and create a blue-ribbon commission that will, presumably, draw up another list that will need further review. But so far he has not endorsed actually cutting any programs on these lists.
Depending on your perspective, McCain's agenda is either empty or terrifying. It is empty in the sense that McCain offers an array of budget-cutting gimmicks that dwarf Reagan's magic asterisk. But McCain's tax cuts are terrifying because, as Jared Bernstein has argued in these pages, they would eventually trigger a budgetary crisis that transforms deep spending cuts from unthinkable to inevitable.
It's hard to know if McCain is intentionally pursuing a dramatic downsizing in the government role, but it's clear to his supporters. Conservative activist Grover Norquist -- who once feuded with McCain but now praises his tax agenda -- has been clear about his desire to shrink government "down to the size where we can drown it in a bathtub." Marxists used to say "the worse the better," aiming to "heighten the contradictions of capitalism." This is the Norquist approach to our budget these days, and the implicit logic in McCain's as well.
McCain's strength as a candidate is rooted in his claim that he is a man who talks honestly and stands up to special interests. But now, on the central issue of this election, he has an agenda that does neither. With corporate giveaways and phony freezes and scrubs, McCain's tax agenda undermines his core political appeal.
You posted this article from a LIBERAL RAG!!!
Coming out of the closet are we?
Well then, America’s only hope is Mrs. Clinton—vote early, vote often
McCain and Bush birds of a fiscally insane, irresponsible feather. 300b in tax cuts and 30b in spending cuts. Meanwhile my young generation will be paying for the 400b/year deficits for the rest of our lives.
I stopped reading at this point. A silly article.
McCain's tax plan isn't perfect, but it increases his core political appeal to this voter.
“You posted this article from a LIBERAL RAG!!!”
While we must automatically believe that anything a liberal writes is suspect, it does bear doing a little research before jumping ot conclusions.
“Paying for his tax credits” is a liberal mantra and non-sequitter: Tax cuts generate growth and that growth, even taxed at the lower tax rates, produces an increase the total amount of tax revenue collected. See, e.g., Kennedy cut of marginal tax rate; Reagan cut to marginal tax rate and CBO reports. BTW: what was your point in posting this article? Just to show how wrong one person can be?
1. Simplify
2. Flatten
3. Lower
Uh (belch), make that “To pay for his $300 billion a year in tax cuts” not “tax credits” But I think y’all get my point.
Why read past here?
He IS NOT A CONSERVATIVE. He is simply the new republican.
And where, pray-tell, is an analysis of the Hill-Obama tax reform proposal(s) that the American Prospect, I’m sure, embraces? How will the Corporate Tax Rate compare with the other G-7 countries after Obama and Hillary are done with their wind-fall profits taxes and other “reforms”? When has a serious tax-reform proposal emerged from the Demo controlled Congress? And what happened to those tax-reforms back in 1986 when the Gipper was in charge and bargaining with Democrats? And when Bush Sr. was promising “no new taxes” but finally cut a deal with the Demo Congress? I don’t remember the American Prospect or its earlier counterparts applauding the statesmanship of Bush Senior in 1992. And I don’t remember the American Prospect or its earlier counterparts complaining that Bill Clinton’s tax policy was making America uncompetitive with the rest of the world.
Have the authors looked at the success rates of the flat-taxers in Eastern Europe and Ireland (even Russia)? I bet Senator McCain would welcome a proposal on a true flat-tax reform plan being brought forward by leading Dems from Congress! Yeah, that’s the ticket! Bring on your proposals, Progressive Liberals!
Yeah, you got me!
while agree on the spending problem, tax cuts are not a zero sum game. A billion in tax cuts is not a billion less going to the government. It is an increase of money going back into the economy, which leads to more tax collection further down the line.
Tinkering with the income tax won’t solve the problem. It is beyond repair. It’s time to replace the income tax code with a consumption tax via The Fair Tax. Fair Tax ping!
There might be some useful facts sprinkled through the article but I got the definite feeling the author was simply debating that McCain’s socialist policies weren’t as good as his socialist policies. When he speaks of smaller government he isn’t talking about the principle of keeping government out of private sector business he’s just talking about a kinder gentler imposition of government interference.
It is filthy liberal, anti-war pansy ass rag.
don’t forget “do-gooder.”
Nasty, stinking do-gooder's!
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