January 23, 2017

FAILING THE THRESHOLD TEST:

How Congress And Trump Can Reform Taxes To Put America First (Mike Lee, JANUARY 23, 2017, The Federalist)

A number of economists on the Right and Left recognize the advantages of cutting corporate taxes and raising shareholder taxes. Although there are some important differences, this general approach is similar to a 2014 plan by Eric Toder of the Urban Institute and the American Enterprise Institute's Alan Viard. Indeed, in a global economy with global investment opportunities, there is no reason for the United States not to tax all income the same.

But, you might ask, won't hiking capital gains and dividends tax rates chase investment offshore? Not with that 0 percent corporate rate! That's the beauty of this approach.

For foreign investors, it would be an offer they couldn't refuse. But even for American investors, it would be a better deal than they could get anywhere else. Today, our 35 percent corporate tax rate, 20 percent rate on capital gains and dividends, and the 3.8 percent Medicare surtax add up to a 50 percent real top federal tax rate on investment income.

After eliminating the corporate tax, we could raise tax rates on capital gains and dividends all the way up to par with labor income (top rate today: 39.6 percent), and investors could still come out ahead, just not as much as workers will, and only if they invest in the United States. Americans would still be free to invest their capital around the world. They will just have to pay the same tax rates in their income all other Americans pay. Thus, this tax reform would not advantage workers over investors; it simply levels the playing field that globalization and current policy have tilted against them.

The good Senator first needs to explain why we wish to punish income and investment.

Posted by at January 23, 2017 5:06 PM

  

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