Friday, February 6, 2009

Rush Limbaugh Is Wrong on Taxes, Part 2 (Corporate Income Tax)

This is part 2 of my series about why Rush Limbaugh is wrong on taxes. Part 1 dealt with capital gains. Part 2 deals with corporate taes.

2. What happens if yhou lower the corporate income tax substantially below the individual rate? Right. Everyone incorporates. Now perhaps every business should incorporate anyway. But that decision should not be forced by the tax code preferiring one type of business form over another. If the capital gains rate were eliminated at the same time, the game playing solely for tax purposes would simply explode. As I said in part 1, a prime goal of any tax code should be simplicity, where people base their decisions on economics and not on manipulation of the tax code.

Rush has proposed, as part of "his" tax plan, that the corporate tax rate be cut in half (while leaving the individual tax rate unchanged). The very first consequence of this would be to eliminate the Subchapter S corporations, because the point of a Subchapter S corporation is to be taxed basically like a sole proprietership, or partnerslhip--passing throught the corporate income to the individual. Why not still allow that, but simply allow a person to use the new corporate rate? Talk about absurd!!! That would mean that a sole proprieter in the same business as a Subchapter S corporation would be paying twice the income tax rate. Nope. It makes no sense. Rush has not thoiught it through (sometwhat unusal for him). Of course, as I have noted, it may be just another tactical deception on Rush's part, wanting to see if he can match the Democrats at their own game of deception: sying what sounds good even if it makes no sense as a matter of rational tax policy. However, as I have also said, that tactic does not work, even as a tactic, unless you have the media on your side. Rush dopes not.

Nope again. The corporate tax rate, as a matter of rational, neutral (as to business form) policy, should be the same rate at the top individual tax rate. No, I have not forgotten that corporate income taxes involve "double taxation", because the individual is then again taxed on dividends (or capital gains). So what? That does not change a thing I have said. Subchaper S corporations don't have that problem, and obviously it is not a prohibitive problem for corporate America (since the problem has existed basically from the beginning of the corporate income tax). If you want to address this problem, you don't do it with the tax RATE. You do it by allowing dividends to be deducted. As explained in the previous entry, the capital gains question is complex, and elliminating that tax opes up too many avenues of blatant manipulatioin for tax purposes. The 15% capital gains rate is a reasonable compromise. Since dividends (qualifying dividends) are now taxed at the capital gains rate, whcih I favor, I don't see much strong reason to try to "solve" the double taxation of corporatioins. It is more important to keep things simple, and avoid manipulation solely for tax reasons.

Does this mean I oppose a corporate income tax cut? Don't be silly. I want to go back to the simple system that Reagan was able to easily sell to the American people. (Whether the people arond Reagan wanted to eliminate the capital gains tax is irrelevant to me, as the tax syste Reagan actually got passed was a rational system, that is easy to explain; Too bad Republicans--Republican Party R.I.P.--allowed Reagan's simple, easily defensible system to be messed up.) This means I favor a top income tax rate, for both corporations and individuals, We would again go back to three income tax rates: 28% (for both corporations and individuals), 15% (although I would have no real objection to dropping this rate to 12% to match the percentage drop in the top rate, even though the 15% rate was not raised from the Reagan rate), and zero % (the bottom rate that almost half of the people are now "paying"--or not parying). This reduction to 28% would cut the present corporate rate 20%, and the top individual rate 20% or so. It would be PREMANENT< and encourage recovery on a sustainable basis instead of on the basis of pork spending not creating "real" jobs.

The above is not what Rush Limbaugh is proposing (even if I think he might agree with it, if it could be done). That is why Rush Limbaugh is wrong. He, and Republicans and other conservatives, are going down the Demcratic road of tax GIMMICKS, instead of sustainable, simple, permanent tax rates. That is a bad mistake. Oh, I understand that Rush could say that my proposal of a return to Reagan cannot get anywhere in today'd politics. Dirty little secret: Rush's proposals have no chance of getting anywher, and undermine the push for a simple, "fair" tax system. I believe it is actually easier to sell the Reagan tax system, than it is to go off on a tangent about capital gains and corporate income taxes. People's eyes glaze oever. Further, this time the people are right and Rush wrong. People's eyes SHOULD glaze over. We need a simple tax code that discourages tax games. Rush is not proposing it . I am.

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