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Sunday, November 6, 2011

WSJ: Corporate Tax Reform Is Supercommittee's Best Hope

Wall Street Journal editorial, The 'Go Big' Illusion:

The super committee's best opportunity is corporate tax reform.

[M]ost House Democrats and President Obama want the super committee to fail. ... [O]ur sources say the White House has been working behind the scenes to scuttle any deal that doesn't have well north of $1 trillion in tax increases. ... House Republicans shouldn't vote to raise taxes by anything close to $1 trillion, no matter what the super committee decides. It would split the GOP and could lead to a tea party revolt next year. ...

That leaves only a de minimis deal, with perhaps one exception: tax reform, especially on corporate taxes, where the policy differences are few and small. Both sides agree that the U.S. corporate tax rate of 35% is too high and hurts American companies. Both also agree that closing loopholes would make the tax code more efficient and raise revenue. They agree, too, that companies would return more capital if the U.S. had a territorial tax system that didn't impose the U.S. tax rate on profit earned abroad when it is repatriated.

It's true that the devil of reform is always in the tax-code details, and something would have to be done to protect the Subchapter S corporations that pay at the individual tax rate of 35%. But the super committee happens to include the chairmen of both tax-writing committees—Democrat Max Baucus of Senate Finance and Dave Camp of Ways and Means. Their staffs have the knowledge to pull off the details if the political will exists. ...

With tax reform, Democrats could say they got the GOP to give up new revenue by closing loopholes, while lower tax rates will impress business. This may also be the only thing Congress can agree on before 2013 that would significantly help the economy. A lower corporate tax rate of, say, 25% would also increase the political incentive for reforming the  individual tax code.

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