Here’s the Best Way to Pay for Ending the Corporate Tax Altogether

Here’s the Best Way to Pay for Ending the Corporate Tax Altogether

By Veronique de Rugy

August 27, 2014 6:18 PM




Corporate inversions are in the news again after Burger King’s announcement that it will be buying the Canadian chain Tim Hortons. I wrote about why American firms would do something this dramatic a few weeks ago: The U.S. happens to have a highly uncompetitive corporate-income-tax system. And not surprisingly, the Burger King move has revived the debate about the need to reform the corporate income tax — in particular, the idea that we should get rid of the corporate tax system altogether. NR’s editors noted yesterday that Harvard’s Greg Mankiw suggested on Saturday in the New York Times on Saturday that we need to repeal the whole corporate tax altogether.

But we usually don’t get anywhere with this idea because money-hungry lawmakers don’t want to deal with the loss of revenue that would result, even though the revenue the corporate tax generates is relatively small. But Stan Collender, writing in Forbes, has a solution to this problem:. Pay for it by ending all corporate welfare!

He writes:

The usual assumption and recommendation is that it be eliminated but replaced with other taxes. Mankiw, for example, recommended that a consumption tax be considered.

But there is a way to change the debate substantially: Don’t just repeal the corporate income tax;, repeal it and at the same time eliminate all federal support for corporations on the spending side of the budget.

There is clearly $300 billion of subsides and other kinds of support for corporations in the federal budget in fiscal 2014. In fact, if you define federal corporate support broadly and include direct support, insurance, indirect subsidies and other types of payments to all industries, the amount of spending is at at least that level. It could be substantially higher.

This would create a serious debate within the corporate community that hasn’t existed so far and would likely pit the companies and industries that don’t want to pay taxes against those that get significant spending side payments and subsidies.

It would also create a serious problem for the accounting profession where some of the largest firms make a significant amount of their revenue from helping corporations comply with the tax laws. These firms could, therefore, find themselves opposing their largest clients on the issue. Add in tax lobbyists, professors and those companies that have currently have a competitive advantage because they don’t pay any federal corporate income tax and the politics of the debate would change profoundly.

Now, that’s what I call a win-win.