In a recent interview, J.W. “Bill” Marriott told the Wall Street Journal that corporate taxes should be lowered “because you want companies to reinvest in innovation, in growth, in technologies.”
I agree with Marriott that we need to grow our economy, but I disagree with him as to how we grow business, and ultimately our economy. Corporate liquidity, which Marriott infers is the problem, cannot be the problem in that there is more liquidity sitting on the sidelines in corporate treasuries now than at any time in history. Apple has $136 billion on hand!
Marriott went on to say “growth in this economy can only come from business.” I disagree; a business grows only when there is aggregate demand for its goods and services.
To get this economy on track, we need to address our dysfunctional tax code. At more than 4 million words and some 4,600 changes since 2001, it is time we go back to Adam Smith’s tenets of what makes good tax policy: simplicity, efficacy, certainty and equality. Our current tax code meets none of these tenets. We need to structure a tax system that supports a balanced budget, while not stifling economic activity. To be serious about balancing our budget, we will also need a sustainable approach to funding Social Security and Medicare.
I suggest the following two guiding principles:
• All income be treated equally.
• A tax code based on market-neutral taxation. That means taxes have the sole purpose of funding the operations and obligations of the federal government. They should not be used to encourage positive outcomes or discourage negative outcomes at a micro level.
What are the objectives of a good tax code?
Broadening the tax base, resulting in lower marginal rates across all income brackets.
Removing tax considerations from affecting business decisions.
Promoting domestic growth by eliminating nonproductive corporate tax shelters and schemes such as the “Double Irish with a Dutch Sandwich” — tax-avoidance strategies employed by multinational corporations to shelter billions of dollars by moving profits to offshore tax havens.
Eliminating double taxation that incentivizes corporations to hoard and deploy capital nonproductively.
How can we achieve the objectives?
Implement a flat corporate federal tax at 25 percent.
Eliminate all corporate tax expenditure loopholes such as deductions for domestic software development and film production, special expensing rules for oil and gas production, corporate jet accelerated deprecation, etc.
Allow corporations to expense paid dividends, which would eliminate double taxation and treat debt and equity equally.
Eliminate personal income classifications so as to treat all income equally as earned income, thus eliminating tax preference for qualified dividends, capital gains, hedge-fund carried interest, etc.
Cap the net tax credit from personal gross income deductions such as home mortgage interest, charitable contributions, health care costs, deductions for state and local income taxes.