Stan Collender is one of my favorite budget wonks, and I don’t say that lightly. His work has a long history of clarity and common sense and I believe we share the same concerns that the direction of fiscal policy in recent years threatens to leave our government without the resources it needs to meet the challenges we face.
So it was with nervous curiosity that I read this post of his advocating the abolition of the corporate tax, as this is something I’ve been worrying about a lot lately. What with the recent inversion dust-up, this idea to kill the corporate tax and replace it with something better is getting more play. Problem is, as with Stan’s plan, that “something better” tends not to withstand scrutiny.
Stan’s idea, though very clever in one respect (note how he pits the spending-side lobbyists against the tax-side lobbyists), faces the classic “show me the money” problem: he argues that we can pay for revenue we lose from scrapping the corporate tax by cutting all the spending in the budget that supports corporations. Giveth to corporations with one hand, by ending the tax on their income. But taketh away with the other, by cutting all the spending in the budget that flows their way.
The problem is that the hand that gives holds way more money than the one that takes. The magnitude of the revenue loss couldn’t possibly be made up with the spending cuts because there just isn’t enough spending there to make up the more than $300 billion or so that you’d lose on an annual basis from ending the corporate tax.
Don’t get me wrong: no question that we waste a lot of money subsidizing businesses that don’t need the help. Agriculture subsidies are a good example. As Elsa would say sing, “let ‘em go!” But they amount to maybe $4 billion a year. How about getting rid of the Export-Import bank, as many on both sides of the aisle are calling for (though I’m not quite there)? That actually goes the wrong way: the bank contributes about $1 billion to the budget each year. The Small Business Administration? Um…under a billion. The US Trade Rep? About $50 million…with an “m.”
To be fair to Stan, he might reasonably argue that if you add up all those cats and dogs, or “rats and mice” as my Kiwi friend more aptly puts it, you’ve got some real money. To be fair to me, the man with the plan (named Stan) should do that. The stakes are high here and I wouldn’t go around arguing we could offset the loss of over $300 billion a year without being sure I could make it up elsewhere.
In lieu of that, we have the Cato Institute’s 2012 estimate of “corporate welfare” in the budget. They get to $100 billion a year, which is a fair bit of rodents, though still just a third of the needed take. But Cato has some questionable entries in the ledger. Some of what they call corporate welfare goes to individuals, not businesses. They list the FHA guaranteed loan program as a $16 billion cost, when, like the Ex-Im bank, this program actually contributes to the budget. Then there’s R&D, including support for research at NIH. I can see where Cato wants to lose all of that, but I don’t and I’m not sure Stan does either.
Suffice it to say that Cato’s $100 billion is an upper bound, and it’s still way short.
One way to fix Stan’s plan is to reverse his sequencing. Don’t get rid of the corporate rate and then try to scrape together the payfors, but make all the cuts you can and then adjust the rate downwards accordingly.
But I wouldn’t go there either. Let’s say we could cut a lot of this waste—and Stan is absolutely solid in that aspiration. Why spend it on cutting the corporate tax rate? Yes, that part of the code needs serious work, but the corps themselves are doing better than ever, with historically high profitability. From where I sit, the folks who could use help in this economy are precisely not the ones who own shares in corporations. It’s the ones on the other end of the income scale, those who depend on their paychecks; those who would benefit from a stronger safety net or more investment in their upward mobility. Heck, if nothing else I’d at least use these savings to replace some of the mindless sequestration cuts (I’ll bet Stan would like that too!).
If I could cut a bunch of corporate waste, that’s where I’d spend the money. Not on a corporate tax cut!