There continues to be more blather about the need for "tax reform, and buddies GOP Dave Camp and skin-deep Dem Max Baucus seem to be intent on accomplishing something "big". And that's what's worrying me.
The Republicans have been arguing that we need tax reform to "simplify" the Code, but that's close to ludicrous. Most of the complicating portions of the Code exist for two reasons: (1) to provide some anti-abuse provisions to counter the tax avoidance techniques of wealthy, sophisticated taxpayers (including multinational corporations) and (2) to provide special tax subsidies through tax expenditures, again mostly for the wealthy (think capital gains preference) and industries with clout (consider the various subsidies for the natural resources extractive industries), accompanied by a few good ones that benefit the poor and marginalized individuals (such as the Earned Income Tax Credit). We shouldn't get rid of the anti-abuse provisions or of those tax expenditures that support lower-income families or favor emerging industries like wind power. That leaves getting rid of the subsidies for Big Oil, Big Pharm, etc as the only simplifying moves that make much sense. Something tells me that's not what will come of the Camp-Baucus rewrite.
The GOP also claim that "tax reform" (by which they invariably mean diminishing tax revenues though cutting tax rates for the wealthiest and corporations) will result in "supporting competition", economic growth and job creation. These claims aren't supported by empirical evidence or, in the case of "supporting competition" aren't necessarily anything that tax writers ought to care about. Yet the mantra of lowering corporate tax rates seems to be what is driving this effort--when corporations already pay an pittance of the tax revenues they originally paid, shifting more of the burden to the middle class.
Why do the Democrats support the idea that we need a major rewrite of the tax code? Regrettably, for much of the same reasons. They've been lobbied by the multinationals that want even lower taxes than they currently pay--those guys ALWAYS want lower taxes, no matter how much their share of tax revenues as a percentage of GDP has shrunk. And the Dems have long bought into the Wall Street mythology that the market's high marks mean good times for all. They are heavily influenced by Wall Street banksters who want low taxes and more speculative profits. ( Obama is even considering that misogynist, mostly wrong economist Larry Summers to head the Fed, a move that should cause deep nausea among any thinking woman and anyone who understands the Fed's role in preventing another Great Recession catastrophe for ordinary Americans. See Mark Thoma's, Larry Summers to head the Fed, WTF post.) The Democrats, that is, are generally disregarding the reality of the role of corporatism, and corporate power, in America today and the way that results in declininng wages for ordinary workers and declining quality of life. See Profits, Norms, and Power, July 20, 2013.
We should not be thinking about "major rewrites of the Code". We should be thinking relatively small. Fix the obviously bad provisions. My list would include considering the following:
- Get rid of captive reinsurance companies and other transfer pricing silliness that allows MNEs to avoid US taxation, such as with legislation that refuses to recognize a sale of intellectual property to an offshore affiliate.
- Eliminate deferral for offshore earnings altogether, not just for Subpart F earnings.
- Install a financial transactions tax--it could raise billions while protecting the financial system and acting as a brake on speculative trading.
- Eliminate the preferential rate for capital gains. At the least, eliminate the treatment of "carried interest" compensation income to fund managers as partnership flow-through income. Increase the estate tax, and making it a progressive rate that taxes gigantic estates at higher rates than small estates.
- Eliminate the mortgage interest deduction for second homes.
- Get rid of the like-kind exchange nonrecognition under section 1031.
- Make the reorganization provisions more restrictive, and eliminate any possibility of loss recognition on reorg stock exchanges.
- Make any compensation over $1 million nondeductible, no matter how determined.
These are just a few of the reasonable reforms that Congress could engage in now. But lowering rates--not something we should even be considering. The United States is one of the lowest taxed, overall, of advanced countries. Because we tax ourselves too little, we are not spending what we should be on public transportation, public education, and public infrastructure, and we are allowing too many important public services to be highjacked for private profit--from building decent housing for military on military bases to letting middlemen profits eat away at decent health care, compared to the single payer systems that every other modern advanced civilization enjoys. We need to raise taxes, and we need to do so in a way that will redistribute economic resources to support public infrastructure needs and move away from oligarchic concentration.
The Baucus-Camp "blank slate" approach--now with this promise of 50 years of guaranteed secrecy for whatever particular senators support or don't support--is extraordinarily worrisome? Secrecy to lawmakers is travesty in a country that claims to be a democracy. Legislation cannot be conducted behind closed doors where Senators are protected from exposure of their views.
Yet secrecy regarding senators views on tax reform is just what Baucus is promising. See Offering 50 Years of Secrecy, The Hill (July 24, 2013). [Hat tip Francine Lipman]
“The letter was done at the request of offices to provide some assurance that the committee would not make their submissions public,” the aide said. “Senators Baucus and Hatch are going out of their way to assure their colleagues they will keep the submissions in confidence.”
Keeping the submissions confidential for a half century, the aide added, was “standard operating procedure for sensitive materials including investigation materials.”
The lengths Baucus and Hatch have gone to reassure their colleagues underscores the importance the tax-writers are placing on the blank slate, and shows they are working hard to ensure that all 100 senators engage in the process.
So the rationalization is that this will protect the Senators from exposure to lobbyists. But if Senators don't have the guts to stand tall for what they believe in, what good are they? Are they really hiding from lobbyists or are they hiding from their ordinary-folk constituents? Lobbyists, after all, have many different avenues for influencing Senators--including the proximity to big money. Lobbyists will pursue legislators whether or not these written views are kept secret.
What about constituents? Constituents often don't know what their Senators are really doing unless it's covered in the news. Secrecy seems to have more to do with permitting Senators to pony up their favorite Big Money fundraiser's idea to be preserved, without constituents getting a whiff of the cozy relationship, than any other thing.
This kind of secrecy has nothing to do with "investigations" or "sensitive materials." It's got to do with "protecting" congressional representatives from having the public know what they really think about critical tax issues (including ones that benefit themselves and their biggest donors).