Guest Saturday #2 with The Free Market Project

This article was originally published by John Slattery at The Free Market Project on March 25, 2011.

Gaming a System Designed to be Gamed

Ed Morrissey at Hot Air writes: Obama’s favorite CEO gets GE out from paying any US taxes.  It turns out that GE has lobbied it’s way into a position where, while following the letter of the law, it can turn billions in profit right here in the USA and end up paying no taxes.

I don’t blame GE.  I don’t blame any company or person who uses the system that is in place–the system where if you can lobby enough you can get a willing politician to help you get tax breaks–to provide them with an advantage.

The problem isn’t that people use the system to get the favored status, the problem is that THAT is the design of the system.  Asking a politician to reform the tax code is asking them to give away money and power.  Politicians have designed it so that people have to come to them with their lobbying money and campaign donations in order to get ever more complexities into the tax code favoring some and punishing others.  Trashing the current system and putting in a flat tax (for example) might be good for everybody in the country, but it is not good for politicians whose money and power is dependent on the ability to help “friends” with their tax problems.

Ed says it well (as usual):

, Flat TaxThis problem started long before Barack Obama came to Washington, or even the Illinois state legislature.  The culprit here is not any one person but both parties, who have created a tax code that I’d call Byzantine, except I don’t want to offend the Byzantines with the comparison.  When we see one company avoid paying any taxes thanks to tax breaks it helped engineer, that means other companies end up losing in the process.  The government doesn’t just structure the code to protect its allies and favored players in markets, it also has to prioritize enforcement, thanks to the impossible task of applying the volumes of tax code to every single entity.

The New York Times’ report treats as ironic the Obama administration’s solution to this issue — lowering the corporate tax rate — but it’s actually the right start.  Not only do we need to lower the corporate rate to make it more competitive in the global market, but we need to rid ourselves of the massive, incomprehensible tax code that allows politicians to curry favor and pick winners and losers in the market.  We need a flat-rate corporate tax that treats GE the same as it does its competitors, and that doesn’t allow Congress to create back-door subsidies and penalties for innovation and market success.  Those reforms should come concurrently with a change to a rational corporate tax rate, not before, after, or in place of.

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