Writing in Business Week, Michael Mandel discusses the president’s most recent proposal. Rather than going with the predominant view in this country that somehow business leaders are the bad guys whose taxes should be hiked, Mandel makes this sound recommendation:
Here’s a radical idea: Obama should go the other direction, striking a blow for simplicity and jobs by reducing the corporate income tax rate from its current 35% to 25%. This is a move that has been advocated by many economists and politicians, notably Senator John McCain (R-Ariz.) last year in his Presidential campaign. But just as only a staunch Republican such as Richard M. Nixon could have opened up relations with China, a reduction in the corporate income tax may be a maneuver that can be accomplished only by a Democrat.
What are the advantages of reducing the corporate income tax? First, such a drop would give U.S.-based multinationals a leg up against foreign-based multinationals—a good thing, if you believe companies based in the U.S. are more likely to locate high-end research, planning, and marketing jobs in this country. Such a drop would further reduce incentives for corporations to contort global investment decisions in an effort to avoid taxes. In particular, opening new operations in the U.S. would immediately become more attractive.
At the same time, lowering the corporate income tax would help extricate the U.S. from a game it cannot win. In an increasingly global economy, chasing profits across national borders is a hopeless task. Indeed, when a product is designed in one country, manufactured in another, and sold in a third, it’s almost impossible to figure out where profits are really being generated.
