In a letter to the Washington Post on October 29, the Cato Institute's
fiscal-policy director, Chris Edwards, wrote to urge the repeal of the corporate
minimum tax. His central argument was that three of the companies that would get
the biggest rebates, IBM, General Motors, and General Electric, are way overtaxed
now. Indeed, he claimed, these companies paid "an enormous $3.4 billion, $1
billion and $5.7 billion, respectively," in federal income taxes last year.
I immediately wrote to the Post to correct Cato's misstatements. The
truth is that IBM paid a mere $191 million in taxes on its $5.7 billion in U.S.
profits last year, a tax rate of only 3.4 percent. GM actually got a tax rebate
of $105 million, despite $2.9 billion in U.S. profits. And GE paid $2.3
billion--not $5.7 billion--on U.S. profits of $13.1 billion. Moreover, GE's
semi-respectable 17.7 percent tax rate last year was an aberration; over the
previous two years, its tax rate was only 8.8 percent.
To get its colossally wrong figures, Cato counted as "money [paid] to
Washington" both the taxes these companies paid to foreign governments on
their overseas earnings and the federal taxes they would have owed but
indefinitely "deferred" due to loopholes.
I assumed this was simply a foolish mistake on Cato's part--and said as much
in my letter. On November 17, the head of the Cato Institute replied to my reply.
He indignantly insisted that Cato knew full well that it was including foreign
and unpaid taxes in its calculations of the "excess" federal tax burdens these
pitiable companies face.
In other words, Cato's original letter was mendacious, not mistaken. While I'd
still take odds I was right the first time, I'm willing to stand corrected.
Understanding Supply-Side Theology
I'm often baffled by supply-sidism; whatever secret
handshakes or other esoteric rituals its devotees may engage in are mysteries to
me. But one hoary piece of supply-side theology that I thought I did
understand--and was pretty sure had been repudiated even by supply-side
fundamentalists--has recently made a surprising comeback.
It started with a November 16 op-ed in the Post by R. Glenn Hubbard,
chairman of the president's Council of Economic Advisers. Hubbard defended the
huge corporate tax breaks in the GOP "stimulus" plan and contrasted them with
Democratic proposals to promote growth by helping people who have lost their jobs
and health insurance.
"It is a major fallacy to praise new spending plans as 'stimulus,'" Hubbard
wrote. "This ignores the fact that a dollar spent by the government is one fewer
that can be spent by private businesses."
At first, I found this argument inscrutable. Why would the stimulative effect
of aiding the needy be negated by the need to raise taxes to pay for it, while
showering money on corporations and the well-off would be just fine?
Two weeks later, however, Mitchell E. Daniels, Jr., director of the Office of
Management and Budget, shed some light on what Hubbard meant. In a November 28
speech in which he predicted budget deficits at least through the rest of
President Bush's term, Daniels took umbrage at the suggestion that the huge tax
cuts enacted last spring might have anything to do with this striking turn of
events. On the contrary, Daniels insisted, without Bush's tax reductions, things
would be even worse. "One can only say, Thank goodness for tax cuts," he said.
Or, as White House Press Secretary Ari Fleischer chimed in, "the best way to
return to an era of surpluses" is to reduce taxes even more.
Of course, we've heard this before. Remember Ronald Reagan's famous promise
that he would pay for his defense buildup with the extra revenues generated by
his tax cuts? But after the Reagan fiasco, that theory has been so discredited
that most otherwise ardent supply-side believers have denied that anyone ever
propounded it. "The Reagan administration never assumed that the tax cuts would
pay for themselves," a 1996 paper on Cato's Web site asserts.
Yet as it turns out, the strange notion that cutting taxes leads to higher
revenues wasn't actually dead--it's just been sleeping. I guess some silly ideas
are just too comforting to abandon.
On October 27, Ken Kies, a notorious big-time lobbyist with
PricewaterhouseCoopers, wrote to the Post taking columnist Robert Novak to
task for criticizing the GOP plan to give low-tax corporations an instant rebate
of all the "alternative minimum taxes" they've ever paid since 1986. Kies, who
has elsewhere been quoted as claiming that he believes it is his patriotic duty
to push for corporate tax breaks, concluded his letter with this stirring
peroration: "If Novak can think of a better way to pump $25 billion into the
economy immediately,...I'd like to see it."
So there you have it. If anyone has "a better way" to spend a quick $25
billion, don't wait. Send your suggestion to Ken Kies, PricewaterhouseCoopers,
1301 K Street NW, Washington, D.C., 20005.
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