Preliminary response to the Administration's corporate tax reform plan

I'm planning to address the Obama Administration's tax reform plan more fully later today (or perhaps tomorrow). This will come after a blog post that I'm currently writing concerning Romney's tax plan, which has the great virtue (from the standpoint of posting promptly) of being only 4 pages long, rather than 25.

But some folks from the Washington Post asked me for a quick preliminary response, which I got back to them a bit on the late side because I spent much of yesterday on an airplane from California back to NYC. Anyway, it's now up on their website here, along with comments from various other people (e.g., Len Burman and Doug Holtz-Eakin).

If you're just interested in what I had to say, it was as follows:

"In general, I like the plan to lower the corporate rate to 28 percent and pay for it through base-broadening — although the disparity this would create between the corporate and top individual rates needs to be dealt with. For example, it affects business entity choices, which the report agrees is important, and encourages self-employed individuals to avoid the top individual rate by using wholly-owned corporate entities and under-paying themselves.

"The focus on a special low rate for domestic manufacturing is unfortunate and egregious, and has zero support from tax experts who are not being paid to support it.

"On the international front, I agree about the importance of addressing income-shifting by U.S. companies that cause all their income to arise for tax purposes in tax havens. But I believe that this is less about jobs, which may not be hugely affected, then about (a) a level playing field between multinationals and other businesses with regard to the tax they face on earning income in the U.S., and (b) progressivity, since high-income individuals who hit “home runs” via corporate entities, such as Google or Facebook, can avoid the corporate tax on their earnings (which is a proxy for taxing them directly) if they can report most of their income as arising in tax havens.

"I’m a bit skeptical about the approach the Administration is suggesting on the international front, but that is not to deny that it might be better than doing nothing. It does reduce the effectiveness of income-shifting and “deferral” maneuvers by U.S. companies, though on the other hand it discourages U.S. companies that are actually investing abroad from seeking to reduce their foreign tax liabilities. The details will be important in judging this more definitively."

Again, all this was preliminary and I hope to post more fully on it in the next couple of days.