Alan Reynolds and TPC Corporate Tax Estimates

Retrieved from the dustbin of the Wall Street Journal Letters Editor

In his Nov. 1 Wall Street Journal op-ed, Alan Reynolds excoriates journalistic fact checkers for their carelessness, citing some of our estimates for support. But then he is similarly careless when he claims the Tax Policy Center (TPC) estimate of corporate rate cuts, “…is also nonsense because it's entirely static. The estimate assumes raising or lowering corporate tax rates has no effect on corporate decisions about where to locate production, income or costs, and no effect on the economy's performance.”

That is simply untrue (as we would have told Mr. Reynolds had he asked). If corporate tax rates were 10 percentage points below the top ordinary income tax rate, there would indeed be increased reporting of corporate income. But individual income tax revenues would fall too, quite possibly by more than the pickup in corporate revenues. Senator McCain's proposal would have made corporations a terrific tax shelter. Investors would have had a huge incentive to channel their income through closely-held corporations instead of reporting it on their individual tax returns. Many S-corporations and partnerships, which are taxed at individual rates, would have chosen to be taxed as C-corporations at a lower rate.

Integrating the corporate and individual income taxes, as proposed by the first President Bush, would cut tax burdens on corporate investment in a fiscally responsible way without opening the door wide to new tax shelters. But simply cutting corporate tax rates without broader reforms costs the Treasury a lot of revenue. I know the Wall Street Journal editorial page tries not to let facts get in the way of its tax-cut narrative, but those facts do matter.

Len Burman
Director, Tax Policy Center