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JOHN MCCAIN: ACCESSORY TO BROADBANDITRY?

September 21, 2006

The Senate yesterday held hearings on tax reforms for business. They are probably a good thing, even if nothing comes out of them, just because they remind people what good tax policy could look like.

Former IRS Commissioner Rossoti had sensible comments, like this from his prepared remarks:

1. Lower rates are better than special preferences.

Over the years a large number of special preferences for particular kinds of business activities have been put into the code. Some of these, such as the R&E credit, are substantial in size and affect a significant percentage of businesses, and others are much smaller and affect only a few businesses. But each of this long list of preferences requires complex rules and regulations to define who is entitled to get these preferences; they are the source of enormous controversy and often confusion between taxpayers, Treasury and the IRS, and they all have the effect of raising the rates for all businesses. In addition, I should note that in a world of increased scrutiny of financial reporting, they are also a source of great complexity and potential error in reconciling tax accounts with financial reporting.

Nearly every witness at the numerous hearings held by the tax reform panel supported this principle: eliminate preferences, lower rates. As an incentive for investments, lower rates are clear cut factors that improve the calculation of the return on almost every investment decision. Special preferences may or may not be taken into account when investment decisions are made. Their impact is not only uneven and unpredictable; it is often weak or non-existent in practice.

John McCain is heading in a different direction, as Tax Analysts reports today ($link):

Meanwhile, Sen. John McCain, R-Ariz., joined the chorus in support of one of the most popular tax extender provisions: the research credit. In an appearance before the Northern Virginia Technology Council in Washington, McCain said "it's long overdue" for Congress to make the research credit permanent.

"It's really hard to understand" why the credit has not been made permanent, McCain said, "because this is a tax credit that's supported by literally everyone."

"Literally everyone"? I guess that makes Mr. Rossoti, and me, nobodies. The research credit doesn't spur research; it spurs taxpayers and their tax pros to harvest the credit from stuff the company already does. And as it doesn't even apply for AMT, its benefit is often lost to software entreprenuers. Better to lower everyone's rates and not have to have IRS agents try to distinguish "research" from "spending."

But research credits aren't the only tax spiff supported by Senator McCain:

McCain, widely considered a front-runner for the 2008 Republican presidential nomination, limited most of his comments to technology issues and the situation in Iraq. On the technology front, McCain recommended the creation of new tax incentives for municipal broadband systems to encourage more competition among broadband providers.

So Senator McCain thinks municipalities should compete with private carriers? Apperently Qwest and the satellite companies can't provide suitable competition; only the mighty City of Waterloo can cope with Mediacom.

Municipal broadband is just a boondoggle for the few companies set up to install municipal broadband networks - broadbanditry, as it is aptly called.

Maybe the Senator will come out for a tax credit for municipal sports bars to provide competition in the recreational alcohol consumption market.

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