Friday, November 2, 2007

Equality vs. incentives: US tax reform

The Economist criticizes Congressman Rangel's proposed tax reform:

...raising the top marginal rate will blunt incentives. If the Bush tax cuts are allowed to expire, America's top rate of income tax could rise to almost 45%, up from 35% today, with state taxes on top of that....His plan ... is mostly concerned with shifting the tax burden from the affluent to the very rich. That is not the kind of redistribution for which it is worth inflicting so much damage on incentives at the top end.

However, they do give him credit for wanting to cut the corporate tax rate:
Mr Rangel wants to cut America's top rate of corporate income tax from 35% (about the highest in the OECD) to 30.5%. The revenue (almost $400 billion over a decade) would be recouped by getting rid of several deductions, including a distorting tax credit for domestic manufacturers. Given that Democrats have long refused to consider cutting corporate income tax, for fear it would be construed as handing tax cuts to the rich, Mr Rangel's ideas mark a clear step forward.

1 comment: