How fiscally prudent is "lower the rate and broaden the base"?

I presented two scenarios in my questioning. In the first, there is loophole closing prior to any rate reduction. In the second, rate reduction occurs simultaneously with loophole closing. I suggested that Congress would be much more readily amenable to remedying any ill effects of “too much” loophole closing (responding, for example, if a business sector were able to produce evidence that it was being unfairly hurt by the absence of a credit or preference) than it would be if a problem arose because rate reduction turned out to be a mistake (for example, if the revenue lost came to be missed, if the lower rates did initiate a renewed race to the bottom with other countries, or otherwise).

Kessler agreed that, from a political point of view, the lowered rate is locked in more securely than are the elimination of tax breaks, although he argued that the need, in general, to get 60 votes in the Senate would operate to make restoration of tax breaks more difficult. (Getting to 60 may not always be as difficult as it may seem. Sometimes a tax break, even if it is one that a particular Senator does not affirmatively support and isn’t afraid to oppose, comes packaged in a bill for which the Senator believes he must vote.)

McIntyre said that it would be distinctly more difficult to remedy an ill-conceived rate reduction given the level of corporate influence: “It’s very hard to raise their rate. Absent a World War, I don’t know how we could do it.”

So why go ahead?

Kessler said he thought “it’s worth rolling the dice.” The level of risk in doing so is, in his view, low: he did not believe that any error in estimating the scope of the fiscal impact of rate reduction would be significant. In contrast, he thought the potential benefit of making change would be significant, saying that he believed the current tax system is “not anywhere near the optimal place where it should be on the corporate side.” Kessler also said it was essential to adapt the system to a world that is significantly more globalized than it was at the time of the last major overhaul 25 years ago.

Baker’s rationales for proceeding with “lower the rate and broaden the base” was that simultaneity was the only politically feasible way to achieve two desirable results: greater distributional equity, and a reduction in the “total waste” of a big industry devoted to wangling tax breaks. “If we could instead of having General Electric pay however much they’re paying their accountants…to the government, that’s a big gain. And if that means some other companies are instead paying less in tax, that’s to my mind still positive.”

Alice Rivlin, the first director of the Congressional Budget Office and a member of 2010’s Bowles-Simpson panel, also thought rate reduction should proceed simultaneously with loophole elimination. Wouldn’t waiting to make a separate decision on rates be more fiscally prudent? Rivlin said “no.” Her reasoning, ironically, is derived from the fact that corporate tax receipts have “shrunk as a source of revenue over many years” (she characterized corporate tax revenues as “tiny”). As such, even a rate reduction that turned out to be unwise, she argued, would not have significant fiscal consequences. Thus, she concluded, on the corporate taxation side “you can’t make the argument that we should wait and see if we really need [more lowering of rates].”

And the Treasury? Again, even on background and in the face of multiple inquiries, Treasury wouldn’t speak to the issue of the fiscal prudence of proceeding with rate cuts at the same time as loophole closing. The spokesperson with whom I was in contact likewise would not address the asymmetry between: (1) the difficulty, if a course correction came to be needed. in restoring rates that had been cut; and (2) the ease with which, subsequent to loophole closing, an independent decision to lower rates could always be made, if warranted. (These were among the questions to which Sen. Wyden’s office did not respond.)

Or perhaps not?

CTJ’s McIntyre is still sounding the call for revenue-positive corporate tax reform because “the alternatives are not very pretty.” If the Congress “does not get some money out of the corporations and the wealthy people, then they have to get it somewhere else to deal with the deficit,” and that, McIntyre said, means entitlement programs, infrastructure, and education funding — are things that he characterized as “much more important to most Americans and, in my view, all a lot more important to a successful business economy as well.”