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Right Turn
Posted at 04:20 PM ET, 02/22/2012

Not only the rates matter

One way to look at how “conservative” a tax plan is to consider the overall tax burden. President Obama’s tax plan, for example, raises corporate taxes $250 billion. Another is to consider the degree to which the government tries to control private sector decision-making and investment through the tax code.

Conn Carroll points out:

The right policy prescription would be to close loopholes for all industries and lower the corporate tax rate. But that is not what Obama does.
Instead, he identifies industries he doesn’t like (e.g. “oil and gas” “insurance industry” “aircraft”) and takes away their loopholes, but leaves other industries alone. This selective enforcement of tax simplification would be bad enough by itself, but then Obama makes it far worse by expanding other loopholes and creating brand new ones.
Specifically, to “strengthen America’s manufacturing sector” Obama cuts the top corporate tax rate on manufacturing income to 25 percent “and to an even lower rate for income from advanced manufacturing activities.” Obama also “Extends, consolidates, and enhances key tax incentives to encourage investment in clean energy.” This will all be a boon for K Street as they fight to make sure their business qualifies as either a manufacturer, clean energy firm, or (like Solyndra) possibly both.

Rick Santorum doesn’t go nearly that far, but he does come out with a special manufacturing rate. Just like Obama, he thinks he knows best where investment dollars should go.

Mitt Romney’s plan, from what we can see, does the least amount of picking “winners and losers.” He comes up with a uniform tax rate, which depends on eliminating special credits and deductions. He is, in effect, taking away the incentives for corporations to game the system. It is the lobbyist/crony capitalist unemployment act since, of course, their lifeblood requires a tax code (and a budget) riddled with special carve outs, credits, deductions and give-aways.

In the House Budget Committee's report on income inequality, Rep. Paul Ryan (R-Wis.) made this critical point in an interview last year:

Congress has slipped into this comfortable mode by both political parties that they’ve enjoyed picking winners and losers. I call it crony capitalism or corporate welfare. It’s gotten out of control. You have protected industries, businesses that have been singled out for favors in the tax code. That necessarily comes at the expense of higher tax rates on everyone else. . . . It’s not fair and it makes businesses less competitive and it makes it harder for that entrepreneur, that person who has come up with an idea, to succeed and grow a business. We need to become a party that’s pro-market not just pro-business because pro-business can easily become confused with crony capitalism and we can’t be confused about this point. We need to become pro-market so we have the conditions for economic growth, so the new budding entrepreneurs that we’ve never even heard of yet have an easier time getting funding for their ideas and growing their businesses and competing in the world economy.”

So in assessing a candidate’s tax and spending plans, conservatives should consider a number of factors: whether the tax code proposal minimizes government distortion of the economy (thereby limiting cronyism and inefficiency); whether it raises revenue required (which for Republican proposals is between 18 and 20 percent of GDP); and whether there is a credible and sufficiently specific plan for cutting discretionary spending and reforming entitlements. On all counts Obama strikes out.

Conservatives should avoid focusing solely on tax rates. The difference between Romney’s 25 percent rate, for example, and Obama’s 28 percent rate is not enormous. But the impact and philosophy of the two plans could not be more different.

By  |  04:20 PM ET, 02/22/2012

Categories:  2012 campaign, Taxes

 
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