The GOP's radical tax plan - by the Washington Post Editorial Board

[DonViejo]

CONGRESSIONAL REPUBLICANS have a big new idea on corporate taxation that could nudge U.S. economic policy in a positive direction, if GOP lawmakers get certain details right, which is a big if.

First, the proposal, which Ways and Means Committee Chairman Kevin Brady (R-Tex.), labels “a key part of our built-for-growth” tax reform plan: Companies based in the United States would be taxed at a flat 20 percent, as opposed to brackets up to 35 percent (riddled with deductions) under current law. The tax would be levied only on net income earned within this country — revenue from exports would be effectively tax free. Also, companies would write off new investment immediately, but lose the deduction for interest expenses they currently enjoy. When you put these changes together, they create fresh incentives to locate economic activity — and register ownership of intellectual property — within the United States, to export rather than import, and to finance businesses with equity rather than debt. Other things being equal, that could improve tax efficiency and domestic job creation.

Like any major tax change, this one would create winners and losers. Perhaps hardest hit would be the real estate and financial industries, whose business models depend heavily on the current deduction for interest expenses. The best response to this concern is that recent experience suggests the U.S. economy might be just a bit over-dependent on real estate and finance. Major retailers, for their part, fret that the after-tax cost of importing the products they sell would go up; refiners of imported crude oil could also face higher costs, which may be why a spokesman for Koch Industries, of Charles and David Koch fame, threw cold water on the idea. Supporters of the plan respond, plausibly, that changes in currency exchange rates could offset any initial impact on import costs.

Now, alas, for those worrisome details. The GOP plan should add nothing to the deficit; it would be self-defeating, in economic terms, to have a debt-discouraging tax system for corporations that was debt-increasing for the government. Perhaps even more important, the Republicans are going to have to figure out how to make such a huge de facto shift in the U.S. tax treatment of imports compliant with international trade law. In its current iteration, the proposal would allow corporations to deduct the costs of wages paid within this country — a nice reward for hiring Americans and paying them well, which for complex reasons could be construed as a discriminatory subsidy under existing World Trade Organization doctrine.

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https://www.washingtonpost.com/opinions/the-gops-radical-tax-plan/2016/12/18/6a8f128a-c3d1-11e6-8422-eac61c0ef74d_story.html?utm_term=.629f88ceb825&wpisrc=nl_headlines&wpmm=1

[no_hypocrisy]

1. Maybe the GOP won't add to the Deficit,

but there are no plans to pay it down either. Or even pay the interest (which is almost $500 billion a year)

http://www.nationaldebtclocks.org/debtclock/unitedstates

[Thor_MN]

3. That would be funny if it didn't have real world consequences.

When has the GOP ever done anything other than balloon the deficit?

[Igel]

4. Right now the deficit is judged sustainable in the long term.

It's about $500 billion/year.

Obama made a promise when he deficit was $250 billion/year or so that since it was utterly unsustainable he'd eliminate it. Now, he inherited a mess, but hasn't backed off the claim that a deficit larger than Bush II"s largest is "sustainable."

At this point, perhaps 3rd parties have a point about reducing the deficit, but neither (D) nor (R) have even the thinnest of ice to stand on.

[LonePirate]

2. There is a 0% chance that Republican tax code changes won't increase the deficit.