This article shows that numerous changes to the tax system will be a central component of "McCainomics." Specifically, Senator McCain favors reducing corporate tax rates from 35 to 25%, doubling dependency deductions from $3,500 to $7000, eliminating the alternative minimum tax, and allowing citizens to file a simpler tax form. He also plans to make current President Bush's tax-cuts for the upper income-brackets permanent.
In promoting such a drastic reduction in the corporate tax rate, Senator McCain is already drawing fire from both Senator Obama and Clinton's electoral campaigns as well as liberal voters. Both democratic candidates have publicly chastised his proposed break for corporations, arguing that middle-class Americans, not corporate entities, need help. While this plan might directly cost left votes, it might also indirectly add support for his campaign by allowing him to continue adhering to his strict free-trade policies.
His consistent support for open trade policies has draw criticism from those particularly sensitive to offshoring. McCain favors reducing and eventually eliminating nearly all trade barriers - a move likely to send American manufacturing jobs to other countries. Although it's entirely possible that workers in these affected sectors will be able to transition to other well-paying jobs in different industries, the issue is still highly controversial.
The corporate tax cut will help combat opposition to his free-trade stance. Specifically, Senator McCain believes that a reduced corporate tax rate will make it more profitable for companies to remain in America, thereby directly reducing offshoring. Thus, while supporting a reduction in corporate taxes from 35% to 25% might indeed cost votes from those in favor of high corporate tax rates, it might also add support from workers in industrial sectors who are wary of losing their jobs.
Sunday, May 18, 2008
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I think you make a good point about the linkages between corporate tax rates and trade (specifically off-shoring and FDI). At the same time, I think it's worth considering the role that tax policies like those proposed by Clinton and Obama could play in enacting the redistribution that is so often deemed necessary in spreading the gains from trade. But you might disagree with me about how necessary that actually is.
Also, I would be curious to see to what extent this reduction in tax rates would actually encourage companies to stay. Many other factors come into play when firms make such decisions--from the infrastructure in a country to its property rights system. Because America is already highly attractive in those respects, maybe a corporate tax cut isn't as beneficial as it would initially seem to be.
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