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McCain's Tax Plan Would Block a Democrat Katrina

Author: Amity Shlaes, Former Hayek Senior Fellow for Political Economy
June 25, 2008


June 25 (Bloomberg)—At about the time the river rose above its banks in Cedar Rapids, Iowa, people in Washington began talking about how John McCain was going to put the whole country underwater with his tax plan.

Suggesting that McCain = Disaster is weird. The fiscal program of the presumptive Republican nominee for president is hardly disastrous. Or, to put it all in diluvial terms, McCain’s levies are like levees. They may look expensive on paper. But they’ll provide a valuable infrastructure that will shore up the American house in ways that will prove more than worth it later.

Consider corporate taxes. Here the U.S. is perilously out of balance with the rest of the world. At 35 percent, our top rate is the second-highest among developed countries, behind only Japan. Everyday, we forgo business because of that 35 percent figure. Executives spend hundreds of hours and hundreds of millions of dollars shifting activity abroad just to get around it. McCain would cut the top rate to 25 percent.

The critics claim that supply-siders overrate the value of tax cuts. Sometimes they are right. When you cut an already low tax a little bit, you’re not going to get the kind of change in behavior that a cut from a very high rate can yield.

But McCain’s corporate change falls into the latter class. A 10-percentage-point rate cut may not pay for itself directly. But overall growth will more than compensate for nominal revenue loss. Domestic businesses could stay home, and foreign businesses would come.

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