Thursday, April 17, 2008

McCain: No More Corporate Welfare?

I bet you don't want to hear about taxes right now, but that's the topic of this post. Or more precisely, I want to write about John McCain's plans to give extra help to corporations should he become the president of the United States:

In yesterday's speech, McCain played to his maverick image, taking corporate chieftains to task for their "extravagant salaries and severance deals." He even called out by name Angelo R. Mozilo, the chief executive of imploding mortgage giant Countrywide, and James E. Cayne, former chief executive of Bear Stearns, which was bailed out by an emergency line of credit from the Federal Reserve Board.

"In my administration, there will be no more subsidies for special pleaders, no more corporate welfare," McCain said.

But much of what he detailed was a corporate special pleader's dream: 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.

He promised to remove the "myriad corporate tax loopholes that are costly, unfair and inconsistent with a free-market economy," but he offered no specifics.

Note the last two paragraphs, because they are important to remember simultaneously. Conservatives tend to argue that American firms cannot compete abroad because of the high corporate tax rate in this country. What conservatives forget to mention are those loopholes. They are so big and comfortable that the taxes American firms ultimately pay are the fourth lowest as a percentage of the GDP of all OECD countries. It's hard to see how that tax burden would keep U.S. firms from being competitive.

Perhaps McCain really intends to close all those loopholes while also intending to cut the tax rate. Who knows. But adding new corporate write-off rules doesn't look like getting tough with corporations.

International competitiveness is not the only argument conservatives propose to justify giving firms "tax relief." They also point out that firms with lower taxes will have more money left over to invest, to expand and to employ more workers. Thus, ultimately the workers will benefit from this help to someone else.

Except for two tiny snags: First, the firms don't have any obligation whatsoever to spend their tax savings on employing more people. Second, even if they do use the savings in that manner the employment effect might take place in Pakistan, India or China, given the ease with which jobs are outsourced these days.

There are better and more effective ways to give American workers some relief. But McCain's proposal is a pretty good one for continuing a policy of corporate welfare.
Cross-posted at the Nation magazine's Passing Through blog.