Among the proposals Pawlenty will push for are cutting the business tax rate to 15 percent from 35 percent and eliminating “special interest handouts, carve-outs, subsidies, and loopholes” in the tax code.This is standard stuff: Republicans call for lowering the tax rate, but for getting rid of exemptions so that the new tax rate still brings in enough money to ensure proper funding of government operations. Only problem is this: the history of tax reform shows us that the exemptions always, always, always come back into play. Kevin Drum noted this yesterday:
It's always satisfying to take a hard line and demand that the tax code be pure, but human nature just doesn't seem to work that way. Everyone has behavior they believe should be encouraged or discouraged, and sometimes the tax code is the most efficient way of doing it. I'm happy with efforts to scrape barnacles away periodically, but there's no point in pretending that the hull is going to stay clean forever.Perhaps the certainty of those reappearing exemptions in why business execs are so hot for Pawlenty-style tax-cut-and-reform. The LA Times:
Corporate tax breaks, such as credits for manufacturing in the U.S. and write-offs for equipment purchases, will total about $124 billion this year, according to the Senate Budget Committee.Taxpayers are paying these companies to do business, in other words. And that's under the current tax structure. I wonder how much more we'd be paying them if the tax rate were cut to 15 percent—and then the exemptions were added back in over a series of years?
By taking advantage of those breaks, Boeing, General Electric Co. and 10 other large U.S. corporations were able to avoid paying any taxes on a combined $171 billion in pre-tax U.S. profits from 2008 to 2010, Citizens for Tax Justice said in a report this week.
The companies received a total of $2.5 billion in tax refunds, for a combined effective tax rate of negative 1.5%, the report said.
That this is happening shows the current tax structure isn't really working all that well, of course. Companies will always seek to minimize their taxes and maximize their profits: of course! But Pawlenty's proposal almost assuredly leads America down the path of funding big-corporation profits at taxpayer expense. If a Democrat did that—say by bailing out car companies—that would be called socialism. When Republicans do it, we call it capitalism.