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THE PROBLEM WITH CORPORATE TAX CODES.
The administration's proposals to close some corporate tax loopholes didn't get much attention last week. In part, that's because the actual issues being addressed are extremely complicated. But that doesn't mean they're not important. This sort of thing, for instance, is really galling, and insofar as we need to raise $60 billion from somewhere, stopping corporations from playing a game of international tax arbitrage is probably a good idea.
But "this sort of thing" is endemic to a complicated tax code. The more intricate the statutes, the easier it will be for trained lawyers to find loopholes. But if the loopholes are very complicated, then the only people who know enough to argue over them will be the lobbyists dedicated to their preservation. It's hard to build a movement around the fact that a rule designed to simplify the classification of different kinds of subsidiaries has been misused by multinational companies who set up subsidiaries and then use high-interest loans to shield profits from taxation. I mean, you probably didn't even make it all the way through that sentence. A simpler tax coe isn't only important because it's more efficient. It's also important because it's more governable.
COMMENTS (25)
I propose a rule - if Congress wants to financially incentivize something, they need to do it as a subsidy ... and not as a tax credit.
Posted by: Phil | May 11, 2009 3:51 PM
Maybe it's just me, or does "simplify the tax code" mean, for the left, to get rich guys and corporations to pay more taxes, and for the right for those very same guys to pay less taxes?
Either way, our tax code is complicated, in part, because we have a complex economy, so we should strive to make it "better," regardless of whether or not it's so simple that accountant's will go existence.
Posted by: Teej | May 11, 2009 4:24 PM
Actually, they mostly shield income from taxation by foreign countries. Which makes the issue substantially more complicated than you imply.
Within a few years, we will be the only major economy to tax the worldwide income of our multinatonal corporations. It could quite plausibly be argued that the check-the-box rules are a back-door way to let our multinational corporations compete on a more even playing field with foreign multinationals that pay lower corporate income tax (unless they are Japanese) and don't pay domestic tax on worldwide income.
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