What about the corporate income tax? (and other Jane Tax Plan issues)

Last updated on: September 10, 2015 at 7:47 am by Jane the Actuary

What about the corporate income tax? (and other Jane Tax Plan issues) 2015-09-10T07:47:36-06:00 Jane the Actuary

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Back in March, I proposed the Jane Tax Plan: a proposal which retains the basic concept of an income tax with marginal brackets, but with a lot of clean-up. I linked to it the other day and got a link to it from instapundit.com, which produced a lot of new feedback on my ideas.

With respect to complaints that the rates are too high: eh, maybe so; the idea is to outline a conceptual structure, with the rates and breakpoints adjusted to reflect existing or (someday. . .) reduced levels of spending.

With respect to complaints that we should scrap the whole thing and adopt a VAT: the reality is, an income tax is based on your ability to pay, and I believe that’s the fairest thing going. Even if you don’t, let’s work within the realm of the possible on this. Yes, there are VATs in Europe and elsewhere, but that’s on top of income tax — but, so far as I know, no one has replaced an income tax with a VAT. And you don’t want to introduce the idea of a bargain of adding a VAT in return for lowered tax rates, because you’ll end up with high rates for both. Besides, the VAT in Germany, for instance, is 19%, but reduced to 7% for food, books, and other items, but they don’t have a state sales tax, which is already 10% in the Chicago area.

With respect to concerns that, if we inflation-index capital gains, the government will systematically understate inflation: the government already has motivation to understate inflation — e.g., inflation adjustments on Social Security, for one. But any government for which The Economist has to put an asterisk instead of an inflation measure, stating in a footnote that the official government inflation reporting is untrustworthy (Argentina, I’m looking at you), is seriously troubled in the first place.

With respect to the corporate income tax: several of the comments complained that I hadn’t addressed the corporate income tax. Now, to a certain extent, I think that’s off-topic. But it is something I had thought about, and concluded: it’s difficult.

Here’s my ideal: corporate profits are not taxed, so long as they are reinvested in the business, in-country. Tax would be applied on a 2-C rule: when it leaves the company or the country.

“Leaves the company” = income is taxed, as ordinary income, whenever it’s paid out as wages, bonuses, dividends, or other ways in which income makes its way from the corporation to individual pockets. Will marginal rates at the top levels have to be higher to compensate for lost revenue otherwise? Maybe; I don’t know.

“Leaves the country” = income is taxed at a fixed rate, when a multinational headquartered elsewhere repatriates profits to its home country, or when a US company shifts money overseas, e.g., taking profits earned in the U.S. to build a new production facility or call center elsewhere.

That’s my concept. The trouble is, it’d be difficult to implement, especially the latter part, but, at the same time, the reason why I hadn’t written about this previously is that I don’t know much about how corporate taxation of multinationals works in the first place, so as to really be able to flesh out the “leave the country” piece. Maybe instead of “profits” we just tax money leaving the country by corporations, pure and simple, and figure, for companies simply selling products manufactured overseas, this replaces existing tariffs.

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