Tax Pandering or Tax Incentive?

by | Apr 17, 2008

In response to Sen. McCain’s proposed tax plan an article in today’s Washington Post (McCain’s Plan for Working Class Offers Plenty for Corporate World) blasted the tax plan as pandering to corporations and businesses. The cry was picked up by several other publications as well. What is the proposed plan and does it amount to pandering?

McCain’s plan includes “a cut in the corporate income tax rate, from 35 percent to 25 percent, a proposal to allow businesses to write off the cost of new equipment and technology from their taxes, a ban on Internet and new cellphone taxes, and a permanent tax credit for research and development.”

Our client, Jenny, a jewelry designer who operates her business as a C corporation and nets $90,000 per year, is currently subject to a marginal corporate tax rate of 34%. Jenny, the epitome of American middle class, would benefit under McCain’s plan. But according to the Washington Post that would be corporate pandering, as her business is a corporation. Poor Jenny, if she only operated her business through a partnership the Washington Post would have been OK with giving her a tax break.

Jim runs a towing yard in East Los Angeles and employs twelve drivers. Under McCain’s plan Jim would find it more affordable to buy a new tow truck or upgrade his computer system (which we have been pushing for a long time, but Jim can’t afford it). That may enable him to expand his operation and become more profitable. He would employ additional drivers and possibly pay even more in taxes because of higher revenues. But according to the Post that would be pandering. Jim should not be able to grow his business that easily.

Even if we completely disregard the beneficial economic effect of McCain’s plan on small business and focus on the tax liabilities of large corporations, why should they not get a tax break? It is obscene that businesses operated through a corporation are subject to a double tax. What is more obscene is the inability of the Washington Post and other socialist pundits to understand that a corporation is an abstract of its owners.

The direct beneficiaries of any corporate tax cut are the shareholders. The nominal shareholders may be mutual funds and pension plans, but the real beneficiaries are individual taxpayers.

So why does Washington Post want to deny tax breaks to small businesses and corporations that directly benefit individual taxpayers? Strangely enough, the Washington Post article omitted that discussion.

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