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DES MOINES REGISTER: "REPEAL JOB-KILLING CORPORATE TAX"

September 27, 2005

Yesterday's editorial in advocating a repeal of the corporate income tax comes as a surprise. Ronald Reagan must be looking down in astonishment to see the editorial board of Gilbert Cranberg's old paper saying of the corporate income tax:

Part of restoring America's competitiveness should be to repeal the tax.

Don't merely trim it. Don't put more loopholes in it. Get rid of it.

Yet the Register has, if belatedly, recognized:

In reality, corporations don't pay taxes. Only people do. The taxes paid by corporations are passed on to individuals in the form of higher prices for products, lower wages for workers or smaller dividends for shareholders. Much of the revenue lost by repealing the corporate income tax would theoretically be recouped in the taxes on higher incomes of workers and shareholders.

IS IT GOOD POLICY?

The Register approaches the issue with the goal of boosting American Manufacturing. This goal seems a bit misdirected; it that economic prosperity should be the goal, not manufacturing for its own sake. Still, good policy is good for industry, too, so we won't quibble.

The only practical difficulty with repealing the corporate tax is that it could undermine the individual tax base and create its own distortions. If corporations can avoid having their income taxed by not distributing it, dividends will become rare. Unless the country goes with a full-blown consumption tax, where dividends and interest aren't taxed, a corporate tax repeal would create such tax-sheltering problems that the repeal wouldn't last.

A better solution may to retain the corporate tax, but to make dividend payments to shareholders fully deductible. That would avoid the tax-sheltering problems of full repeal while eliminating one of the two layers of tax on corporate earnings. It would also probably be better for the economy; it strikes us as unwise to have a system that encourages captains of industry to have lots of cash sitting around for no other reason but to avoid taxes.

We would couple this system with an excise tax to be withheld on distributions to tax-exempt entities, but to make up for lost revenue and to ensure that the income gets taxed somewhere along the line.

HOW ABOUT AN 'IOWA-ONLY' REPEAL?

One of the joys of our federal system is that states can be "economic laboratories." Iowa's corporate income tax raises a paltry share of the state's tax revenue, in spite of it's highest-in-the-nation 12% top rate. While the Register has little influence the national tax policy debate, it still has clout in Iowa. Repealing Iowa's corporate taxes, either outright or via full dividend deductibility, could be worth more in economic development that all the Grow Iowa Values credits you could shake a lobbyist at. Go for it, Register.

RETURNING TO NORMALCY

Today's editorial brings the Register editorial page staff back to ground they surely find more comfortable -- government-run health care:

Studies show that a universal, government-sponsored system — similar to those in every other industrialized nation — could cover everyone in America for about the same amount Americans now pay for a disjointed, job-based system. The bonus: It would improve the competitive position of American manufacturers.

It seems to us that individuals, rather than governments, should be the health-care decision-makers. As Canada has learned the hard way, government health-care becomes the right to get on a waiting list for treatment, rather than a right to treatment itself.

Link: "Does anyone know if they are handing out parkas in hell?"

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