Matt Yglesias has a modest proposal. He says we should get rid of the corporate income tax. It only brings in 1-2% of federal income taxes. So given how good corporations are at getting out of it, let’s just abolish it. As he notes, the main good it does is to provide employment for “a small army of accountants, tax lawyers, lobbyists, and CNBC talking heads.” He says we can replace it with a better targeted tax.
Fair enough. But what kind of tax? Here, I’m totally with Yglesias: get rid of the current low tax rates for dividend income. In doing that, we would effectively be taxing the same people the corporate tax did. Except it would be even better: creating a more focused, direct tax. What’s more, it would get rid of the specious argument that corporate taxes just get passed onto consumers.
The problem I have with this idea is that (like most of Yglesias’ bright ideas) it wouldn’t work that way in the real world. Sure, both political parties would be happy to eliminate the corporate income tax. Really: both. But Republicans would claim that tax cuts don’t have to be offset because they pay for themselves. That would result in another huge tax cut for the wealthiest among us.
The other possibility is that the Democrats would force some offsetting tax. But there is no way that the Republicans would allow the tax to be offset with a tax on the rich. It just wouldn’t happen. Instead, we would get some tax that (as usual) soaks the middle class. So Yglesias’ idea is sound in theory, but in practice would just redistribute more income upward.
We don’t need any more of that.
Now that I think about it, the idiotic idea that corporate taxes are just passed on to consumers might be used to justify a middle class tax increase. Conservatives could argue that the middle class will get better prices from corporations so it is a wash. This, of course, is totally wrong. But I can well imagine it catching fire in the conservative echo chamber.