Bloomberg Column: Max Baucus’s Self-Defeating Tax Plan

Aaron Flint posted on December 05, 2013 17:17 :: 638 Views

The way I see it, there’s been at least three big economic stories for Montana this past year: the Bakken oil/gas activity, a modest manufacturing revival, and the added value of pulse crops on the same piece of ground raising wheat that otherwise would have gone idle. 

One could argue that what seems to be the noble effort by Sen. Max Baucus (D-MT) to reform the tax code during his final months in office could target 2 of those.  I’ve already pointed out how he plans to hike taxes on the oil and gas sector, but now Ramesh Ponnuru argues in a Bloomberg column that the effort could also hamper manufacturing.

Bloomberg Column: Max Baucus’s Self-Defeating Tax Plan

Baucus’s misplaced priorities have resulted in an unnecessarily complicated and self-defeating plan.

There’s bipartisan support for lowering the 35 percent federal corporate tax rate, which is among the highest in the developed world. Both parties see the rate as a burden for the economy because it pushes investors — American and foreign — to seek their returns in other countries. Economists argue that the tax therefore depresses wage growth in the U.S., a claim supported by numerous studies.

These features are not, however, the plan’s main defect. To pay for the reduction in the tax rate, the Baucus plan slows the rate at which companies can write off the cost of investment. This trade-off may have been made merely to get the numbers to work, but its effect is to favor past investments over future ones.

Reihan Salam quotes Mark Mills and breaks it down further for National Review: Max Baucus’s Corporate Tax Reform Could Stymie the Manufacturing Revival

In a remarkably little-noticed report this past summer the American Chemical Council (ACS) catalogued nearly 100 chemical industry investments valued at over $70 billion that are coming on-line by 2017.  This will generate over one million jobs and add over $300 billion to the GDP.

The effects of the boom in the energy-intensive manufacturing ecosystem will inevitably ripple out, catalyzing more manufacturing both upstream and downstream. 

This seems like the wrong moment to raise taxes on new capital to finance lower taxes for old capital.


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