A Conservative Suggests We Raise the Capital Gains Tax

James Pethokoukis asks:

Should we eliminate corporate income taxes and raise capital gains taxes?

Hmmm. I’m guessing he thinks the answer is no. But wait! Maybe not:

I have already suggested that Mitt Romney propose axing the corporate tax. Combining that with an increase in the capital gains tax—a tax hike on Romney himself—might be a doable compromise….How about this: A top tax of 28%—back to where it was in 1986 under bipartisan tax reform and close to Obama’s Buffett Rule—on all income along with an elimination of corporate income taxes? Any takers? Any suggested modifications?

Although I’m not ready to jump on this specific bandwagon quite yet, I’d be willing to talk. There are a bunch of practical problems with eliminating the corporate income tax, but it’s possible they could be overcome. As for the 28% top rate — well, let’s just take that as an opening bid. I doubt you could lower it that much. In fact, I’m not sure you could lower it at all, since higher taxes on investment income might not make up for the loss of corporate income tax revenue. What’s more, capital gains and dividend taxes are going to be raised automatically at the end of the year if the Bush tax cuts aren’t extended, so offering to raise them now isn’t really much of a concession.

Despite all that, I continue to think this has possibilities. The corporate income tax isn’t just insanely complicated, it’s also impossible to prevent it from becoming an endless honeypot of corporate subsidies and payoffs. Getting rid of it entirely is probably the only way to put an end to this.

Politically, the biggest problem with this proposal is that once the corporate income tax is gone, it would be gone forever. It’s just too hard to bring it back to life. Conversely, reducing the capital gains tax is simplicity itself. So a likely outcome of all this is that the corporate income tax would go away, and ten years from now we’d be back to the same old low rates on capital gains and dividends because — oh, you know the drill. High investment taxes are hurting capital formation, punishing the job creators, stifling investment, crushing the economy, blah blah blah.

Still, it’s worth a conversation even if it is pie in the sky. I’d be pretty interested in seeing some neutral revenue and distributional analysis of the whole thing.


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