The Lobbyists' Tax Bill

Congress is considering perhaps the worst piece of tax legislation in nearly 20 years. By caving in to the well-connected posse of Washington special-interest lobbyists, legislators are insulting the bipartisan effort of the 1986 Tax Reform Act that simplified the code and made it fairer. The whole exercise is even more sordid because it is occurring in a year when many members of the Senate and House are running for reelection and need campaign contributions. A Senate-House conference committee is scheduled to negotiate different versions of the tax bill. Conferees should do the right thing and strip the bill down to a few bare essentials.

The Senate bill contains tax provisions designed to favor insurers, timber companies, foreign gamblers, NASCAR track owners, energy companies, and makers of fishing tackle boxes, bow-and-arrow sets, and small planes. The House bill gives $2 billion to tobacco farmers, allows high-tech employees to pay no payroll taxes on stock options, helps bourbon distillers, and permits wealthy taxpayers in states that have no income tax (Texas, Oregon) to deduct sales taxes on their federal 1040 forms.

Egad! The original reason for reforming the corporate tax code was to replace a $5 billion annual tax subsidy for U.S. exporters that was ruled illegal by the World Trade Organization. To compensate companies for this loss, the Senate and House heaped on special-interest tax breaks and reduced the corporate income tax rate, but only for those companies that manufacture in the U.S. (someone needs to tell Congress about the rebound in manufacturing). Lobbyists then persuaded legislators that movie studios and software programmers were "manufacturers." Oh, why not.

Congressional conferees should show courage by telling special-interest lobbyists to get lost. They should then just cut the corporate income tax rate across the board to 32%. And finally, they should pass provisions to simplify the treatment of foreign corporate earnings, allowing overseas profits to be repatriated without penalty. That tax bill would help the economy grow rather than corrupt and distort its workings.

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