Fortunately for the Japanese, they followed this advice and implemented a tax reform based on the Shoup recommendations. Unfortunately for the United States, we never implemented anything similar. Although previous presidents, including Democrats like Jimmy Carter, talked about reducing double taxation, only George W. Bush actually made a serious effort to do so.
Still, it is important to keep in mind that reducing or eliminating the double taxation of corporate profits is only a means to an end, not an end in itself. The goal is to raise growth and incomes, and Bush's plan is just one way of doing so. House Ways and Means Committee Chairman Bill Thomas, Republican of California, also has a good proposal that would cut the top tax rate on dividends and capital gains to 15 percent.
Economist Kevin Hassett of the American Enterprise Institute has calculated that the Thomas plan would reduce the cost of capital by as much as the Bush plan, and thus have a similar impact on growth. Unfortunately, the Bush administration still seems wedded to full elimination of double taxation, even though it costs more than the congressional budget resolution allows.
To get even a semblance of the Bush plan will require economically unsound compromises, such as phasing it in over a period of years, sunsetting the legislation after a short time or capping the benefits at $500 per taxpayer, as the Senate Finance Committee has proposed. These measures would be far inferior to the Thomas plan, which has a much better chance of passage than the original Bush plan.
If Glenn Hubbard were still in the White House, I have no doubt that President Bush would understand that pride of authorship is unimportant; passing legislation that will boost growth by cutting the cost of capital -- however it is done -- should be the legislative goal.
Unfortunately, his successor, economist Greg Mankiw, is still unconfirmed by the Senate, and thus in a weaker position to exercise influence. In fact, the whole Council of Economics Advisers has been physically banished from the White House.
All presidential initiatives necessarily require compromise to attain congressional passage. At the end of the day, it is important that administrations clearly understand what they are really trying to accomplish. Sometimes, the same goal can be attained in different ways than the administration proposed. Presidents should not be afraid to follow a different path if it gets them to the same destination.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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