Posted Friday, Feb. 24, 2012, at 9:21 AM
After I wrote about the corporate income tax, readers of various political persuasions wrote in to ask why I don't think we should just get rid of the thing altogether. The answer is pretty simple—it raises around two percent of GDP! It's the same as the reason why we don't just get rid of all kinds of taxes that are sitting on state, federal, or municipal tax codes. Now a different question is whether I think an ideal tax code would feature a corporate income tax. The answer is almost certainly "no" (although you could imagine a situation where people get so clever at tax avoidance that you need to institute one) but that's a different question. The difficulty with any major change to the tax code is that you'd have to build a consensus around some alternative strategy.
I'd rather stick with the corporate income tax than make up the lost revenue by cutting Medicaid. On the other hand, I'd much rather have a carbon tax than a corporate income tax, but you'll find that the coal and oil industries don't agree with me on that. It's hard out there for a tax reformer. I do think the Obama administration's instinct to "go small" on corporate tax reform is a little bit hard to understand. As long as you're proposing a politically unrealistic revenue-neutral tax reform, why not go for a really big unreaslistic tax reform like my green tax shift idea?