Tax Reform IV: Corporate Tax Reform

The United States has one of the highest corporate income tax rates in the world. While both the Obama administration and Trump administration have criticized American companies for moving operations off-shore, and considered a variety of policies for punishing them if they do, a better approach would be to design policies that make it attractive for all corporations to locate their operations in the United States.

One way to do that would be to lower the corporate tax rate. While the current 35% rate is high, many corporations pay minimal income taxes because the overly-complex tax code has so many loopholes. Eliminate them to simplify the tax code and make more revenue subject to tax, and lower the corporate rate to 22%. I’m suggesting 22% because in an earlier post I suggested a 22% personal income tax rate, and it’s good tax policy to set the personal and corporate rates at the same level so corporate income is neither favored nor disfavored by the tax system relative to personal income.

Despite there being a good case for eliminating all deductions and loopholes in the corporate tax structure, I’d argue for enlarging two.

First, corporate dividends should be deducted from taxable income. They are paid to individuals who pay individual income taxes on them, and this would eliminate a double tax. Interest payments are already deductible. Why shouldn’t dividends be treated the same way?

Second, allow corporations to expense all of their investment expenditures. Currently, they are depreciated, with complex rules that set up a host of different depreciation schedules. Their tax accounting is unnecessarily complicated, and depreciation for tax purposes is largely unrelated to the actual depreciation in the value of their assets. On the whole, expensing depreciation is revenue-neutral, although compared to the existing tax structure it would convey a tax advantage to expanding companies and a tax disadvantage to contracting companies. This is likely to be beneficial to the economy as a whole, however.

When thinking about corporate tax reform, the ultimate goal should be to design a system that attracts corporations to the United States rather than repelling them.

Review: Atomic Blonde‘s Stylish Action Bolstered by Duplicity of War

Current events have bolstered Atomic Blonde‘s, giving the film substance beyond its role as a conventional summer action movie better at scoring at the box office than provoking thought. Accusations of Russian influence in domestic elections, eyebrow-raising flights by private jet by millionaires advising presidential candidates, and historically low levels of trust in information from the White House all play into the duplicitous character of Cold War espionage and international intrigue that is at the core of story underlying Atomic Blonde.

Set in 1989 Berlin, just days before the fall of the Berlin Wall, the movie is a classically crafted action film in the tradition of Jason Bourne and James Bond. Stuntman turned Director David Leitch (John Wick, Confessions of an Action Star) has created a stylish, visually engaging film with plenty of action, well choreographed fights and car chases, and brutal violence. The only substantive difference between Atomic Blonde and other action films is the lead female character—literally the Blonde.

The movie’s premise is a common plot device for international espionage stories—the bad guys (the Soviet Union’s KGB spies) have obtained top-secret information on the good guys, in this case a list of the names and locations of English and allied-nation spies. Complicating matters is a double agent code-named Satchel who may or may not have the names and who may or may not be selling them to the Russians. England’s top undercover agent, Lorraine (Charlize Theron, Cider House Rules, Monster, Mad Max: Fury Road), is dispatched by MI6 (Britain’s foreign intelligence agency) to Berlin to recover the list and track down Satchel.

Lorraine is supposed to work with station chief David Percival (James McAvoy, Chronicles of Narnia, X-Men: Apocalypse, Split), who is working undercover in East Berlin. Somehow, the KGB keeps showing up where she is, and Lorraine soon realizes she is caught in a double cross. So, she starts working with her own contact, Merkel (Swedish actor Bill Skarsgard, Anna Karenina, The Divergent Series: Allegiant). Along the way she befriends a young French agent Delphine Lasalle (Sofia Boutella, Kingsman: The Secret Service, Star Trek Beyond, The Mummy) who is in way over her head. Complicating matters even more is the relentless and ruthless billionaire arms dealer Aleksander Bremovych (Danish actor Roland Moller, R, Horsens State Prison, Land of Mine) who is also interested in the names. John Goodman (Rosanne, Raising Arizona, Patriot’s Day, 10 Clover Lane) performs a solid turn as CIA agent Emmett Kurzfield assigned to work with MI6, although his role will have audiences wondering why he is on screen until the very end.

These complications serve the film well, preventing a well-trodden plot from becoming too predictable and relying completely on the characteristic (and predictable) action scenes to engage the audience. Screenwriter Kurt Johnstad (300, Act of Valor, 300: Rise of an Empire) has pulled together a generally tight script with believable dialogue and enough mystery to never fully reveal the true extent of the intrigue until the end.

Atomic Blonde is a clearly a vehicle for Theron, and she does a fine job playing the role of the dour, emotionally broken British intelligence agent. Unfortunately, this character type also prevents her from showing much range. The audience gets a whiff of her humanity through the relationship with Lasalle, but the detached personalities that are a spy caper staple prevent much real emotion or connection with other characters. Then again, she’s great at kicking butt and she knows how to use the requisite toys well.

Most spy film fans will be entertained by Atomic Blonde. The story may also remind us of how fact, fiction, and loyalty are inevitably corrupted during times of war, cold or hot. There are no winners, and those who prosper the most are those with the fewest scruples. Wars inevitably devolve into a brutishness where ends justify means.

Tax Reform III: Tax Employer Health Care Benefits; Offer a Tax Credit to Health Insurance Purchasers

In an earlier blog post I suggested eliminating all personal tax deductions, with a possible exception related to health care. One of the well-publicized problems with the American health care system is that employer-provided health insurance is not taxed, pushing us to a system in which people get health insurance from their employers. A better option would be to allow a competitive market in which people shop for their own health insurance, as they do with homeowner insurance, auto insurance, life insurance, and really, all insurance except for health insurance.

One way to change the system is to make employer-provided health insurance a taxable benefit, taking away the tax advantage of buying health insurance through one’s employer. That would impose a tax cost on those receiving the benefit, which could be offset by allowing everyone to deduct the cost of their health insurance from their taxable income.

One problem with the deduction is that those with higher incomes would benefit more from it than those with lower incomes whose tax liabilities may be less than what they would have to pay for health insurance. So, provide everyone with a refundable tax credit up to some limit, or maybe as a percentage of their premium cost. For example, the credit could be 85% of the cost of their premiums. This is not that original an idea, in that it is similar to one of the proposals John McCain made when he was running for president.

This policy would have a huge beneficial effect on the market for health care, although it would not be optimal for tax policy. Simply looking at the tax system, the best option would be just to tax employer-provided health insurance and use the extra revenues to lower tax rates for everyone. The problem is that politically, it would be very difficult to tax health insurance benefits without some offset. The tax credit provides a mechanism that would not impose a cost on those who now receive the benefit, would invigorate the market for health care and health insurance, and would encourage everyone to buy health insurance.

It is not a perfect policy, but it is a politically feasible way to improve on what we have now.

Tax Reform II: Lower Rates; Eliminate Deductions

As Congress considers tax reform, the focus on the personal income tax should be to lower rates and eliminate all deductions except for a standard deduction that applies to everyone. Lower rates enough to offset the increased revenue from eliminating deductions, and set the standard deduction at a level that raises the same amount of revenue as the pre-reform tax system. Personal income tax reform should be revenue-neutral. That avoids debates on whether taxes should be raised or lowered and focuses on making the tax system fairer and more efficient.

I propose a flat rate of 22% on all income beyond the standard deduction. Set the standard deduction at a level that satisfies the revenue-neutrality criterion.

Most deductions have some sort of reasonable justification behind them, but there are often arguments against them, and in all cases one of the arguments against them is that if the deductions didn’t exist, the same amount of revenue could be raised with lower rates. Consider a few.

The School Choice Deplorables

Are you now, or have you ever been, a supporter of the right of parents to choose their children’s schools? Then you’re a school choice deplorable.

At least, that’s what some school choice opponents want us to believe.

It’s no secret that President Trump and Education Secretary Betsy DeVos are long-time school choice supporters. Opponents are fighting back by portraying private school vouchers, and by association those who use or support them, as racist.

On the heels of DeVos’ confirmation as Education Secretary, the “progressiveCentury Foundation fired an opening salvo with a report suggesting that vouchers could hurt school integration. Shortly thereafter the also “progressiveCenter for American Progress released a study proclaiming that the origins of private school vouchers are “racist” and their history is “sordid.” A few days later American Federation of Teachers president Randi Weingarten referred to private school choice as a polite cousin of segregation. And just last month The New York Times ran a column purporting to expose what “government school” critics are really all about, namely, segregation.

But their strategy is backfiring in a big way.

Tax Reform I: Expand the IRA

As Congress turns its attention to tax reform, one desirable change would be to expand the availability of IRA accounts to more taxpayers, with higher limits, and for purposes other than retirement. I’ll follow up with more tax reform recommendations in later posts, and apologize for making my first suggestion a somewhat technical one.

Current tax law places a double tax on saving, unless the saving takes place within certain specifically created accounts, like IRAs, 401(k)s, 403(b)s, and other plans offered by (some) employers. The reason most saving is double-taxed is that saving comes out of income that is subject to the income tax, and then when interest, dividend, and capital gains income is earned off that saved income, it is taxed again. The big advantage those specifically created accounts provide is that they tax savings only once. For the most part, no income tax is paid on the saving when it goes into the account, and then income tax is paid on the money that is taken out. Roth IRAs and other Roth accounts tax the money that goes in but money can be withdrawn without paying taxes again. These accounts eliminate the double tax on saving, which is both fair and creates more of an incentive to save rather than consume income.

Because of the perks that come with their jobs, upper-income people typically have many options for participating in these savings plans and eliminating the double tax on saving. That’s not so true of lower-income people. They can choose to open their own IRA accounts, but there are contribution limits that constrain how much money they can put in. And, except for the Roth accounts, contributors face financial penalties if they withdraw money from their accounts before they reach age 59 1/2, which further discourages contributions.

Checks and Balances: Assessing Trump’s First 200 Days

President Donald Trump’s administration has passed the 200 day mark, a milestone that might make it reasonable to look at what he’s accomplished after making big promises in his campaign. No Obamacare repeal. No tax reform. No NAFTA repeal. No wall. No immigration reform (although he did issue some executive orders that were partially undone by the courts).

Unless one counts the excitement of reading President Trump’s often-amusing tweets, the first 200 days of his administration hasn’t brought with it many changes.

In fairness to the president, many of the policy changes he campaigned on are not within the power of the president to change. The lack of progress in Trump’s agenda is (partly? mainly?) a result of the checks and balances that are a built into the constitutional design of our government. Regardless of one’s views on Trump’s campaign promises, the constitutionally limited powers of the president must be viewed as a desirable feature of our government–one worth preserving, even though it has been eroded over the centuries.

As a corporate CEO, Trump faced fewer checks and balances. Whatever he said, those below him acted on. In business, the “check and balance” is the bottom line. Businesses that produce more value than they take out of the economy enjoy profits; those that don’t suffer losses. What the boss says, goes.

Government isn’t like that in the United States, at least not yet. We are not like Putin’s Russia, or Maduro’s Venezuela.

I’m not sure Trump had a good understanding of the limited power of the presidency when he took office, or the need to cooperate with legislators to push his agenda. But that’s a bit of a tangent from the point I want to get across here.

The checks and balances we have in government are valuable because they keep us from becoming like Putin’s Russia, or Maduro’s Venezuela, and they have been weakened since the Constitution was written.

President Obama didn’t get everything he wanted, to the disappointment of some; President Trump isn’t getting everything he wants, to the disappointment of others. But everyone should realize that eventually, someone they don’t like will get elected president, so everyone should support maintaining and strengthening the checks and balances designed into the Constitution.

We don’t want it to be easy for politicians to redesign public policy. I liked some of Trump’s campaign promises and didn’t like others, but I’m not unhappy that he’s facing (constitutionally designed) difficulties turning his promises into realities.

Forgive and Forget Won’t Fix College Debt

“Free” college and loan forgiveness are increasingly popular ideas. According to a recent AOL News poll, for example, 49 percent of respondents believe every state should offer free four-year public college tuition. Another poll by found that nearly 42 percent of respondents favored forgiving all student loan debt.

Such results are understandable. After all, who doesn’t like forgiveness and free stuff?

The ones paying for it, that’s who–especially since the bill’s probably going to be pretty steep.

Total student debt now tops $1.4 trillion, and there’s growing evidence that borrowing by the federal government to subsidize its student lending is hurting the economy.

President Trump has proposed several student loan reforms designed to streamline repayment plans and make them more affordable for student borrowers (p. 20).

Under Trump’s plan no more students would be eligible for the Public Service Loan Forgiveness program (pp. 20, 33, and 39), which was signed into law in 2007 by President George W. Bush to forgive outstanding student loan balances for government employees and those who work in certain non-profit and service sectors, such as the Peace Corps, after 10 years. (See also here and here.)

Trump’s plan would also eliminate subsidized loans, which offer different rates for low-income students, and replace them with a single income-driven repayment (IDR) plan instead (p. 33; see also here, here, and here).

Under his plan borrowers would make higher monthly repayments from their discretionary income, 12.5 percent versus the current 10 percent, but any remaining balances would be forgiven after 15 years instead of 20 years (p. 20; see also here and here.)

Not a “New Deal,” a “Fair Deal” or a “Square Deal,” but Supposedly a “Better Deal”

Towards the end of July, eight months after losing the White House to Donald Trump, leading figures of the Democratic Party launched their crusade to regain control of the U.S. Congress in next year’s midterm elections. Announcing his party’s “Better Deal,” U.S. Senator Charles Schumer wrote that “Rather than having a government that benefits the special interests and very wealthy, Democrats believe that government should work on behalf of the middle class and those struggling to get there.”

A Better Deal? Better hold onto your wallet.

Clearly taking a few pages out of President Trump’s campaign playbook, the Democrats’ policy agenda contains three interrelated promises (“Better Jobs, Better Wages, Better Future”), almost none of which is a proper function of the federal government in the first place or is within its powers actually to fulfill in today’s hyper-partisan atmosphere. Full of action words like “fight back,” “crack down,” and “prioritize,” the Better Deal demonizes “unfair foreign trade;” “corporations and billionaires,” especially those who “outsource American jobs;” “monopolies;” “special interests;” “lobbyists” and “Wall Street.” It is vintage populism; it could have been written a century ago.

Is Jeff Sessions Still Attorney General?

A few weeks ago I was hopeful that Jeff Sessions was on his way out as Attorney General, because President Trump didn’t like his recusing himself on the Russia investigation or the appointment of special counsel Robert Mueller. But that has nothing to do with my hopes for a short tenure for the attorney general.

The two big issues I have with Sessions are his intention to escalate the so-called war on drugs, and his support for civil asset forfeiture.

The war on drugs is misnamed. It is not a war on inanimate objects, it is a war on American citizens who make choices some people in government don’t like. As for civil asset forfeiture–government’s ability to take people’s property without even accusing them of a crime–I honestly don’t see any defense for it that is compatible with basic principles of due process and liberty.

Sessions seems to have gained a bit of support from Trump for his attack on sanctuary cities, I’m sorry to see. My sorrow here has nothing to do with sanctuary cities and everything to do with the war on drugs and civil asset forfeiture. I don’t feel I’m being extreme in expressing dissatisfaction with an attorney general who has so little respect for individual rights.

President Trump and I have different reasons for our dissatisfaction with the attorney general. I’m not sure I’d be happier with his replacement, but I’d be happy if Trump would give me the opportunity to find out.