The debt-limit talks in Washington are bogged down in the hedgerows, with some Republicans insisting on a balanced budget amendment that can’t pass Congress and President Obama insisting on tax increases that Republicans oppose. What this debate needs is a breakout strategy—to wit, Republicans should answer Mr. Obama’s tax call by accepting his business tax increases in return for a lower corporate tax rate.
We’ve long favored such a reform, and last year so did the Simpson-Bowles deficit commission and the White House economic advisory council headed by Paul Volcker. But the cause has now acquired no less a convert than Bill Clinton. Speaking Saturday at something called the Aspen Ideas Festival, the former President admitted that he had once raised tax rates on corporations.
“It made sense when I did it. It doesn’t make sense anymore. We’ve got an uncompetitive rate,” he said. “We tax at 35% of income, although we only take about 23%. So we should cut the rate to 25%, or whatever’s competitive, and eliminate a lot of the deductions so that we still get a fair amount, and there’s not so much variance in what the corporations pay.”
We’d prefer 15% ourselves, but Mr. Clinton is exactly right on the failure of the 35% rate (39% on average including the states) to capture that share of corporate income in government revenue. We wrote earlier this year about Whirlpool, which had an effective tax rate of zero due to its many write-offs. Everyone knows the notorious case of GE.