Commentary Magazine


Posts For: July 17, 2014

Abolishing the Corporate Income Tax

Megan McArdle at Bloomberg View has a terrific article today arguing that the corporate income tax should be abolished. She points out that it has become “a sort of long chess match.” The government makes a move and the armies of tax lawyers and accountants make a countermove. This has consequences:

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Megan McArdle at Bloomberg View has a terrific article today arguing that the corporate income tax should be abolished. She points out that it has become “a sort of long chess match.” The government makes a move and the armies of tax lawyers and accountants make a countermove. This has consequences:

Every new law has possible intersections with every other tax law in existence. As the number of laws grows, the number of possible intersections grows even faster. And each of those intersections represents both a possible way to avoid taxes and a potential for unintended consequences that inadvertently outlaw something Congress never intended to touch. This growing complexity makes it more and more difficult for either companies or lawmakers to forecast the ultimate effects of new tax laws. That’s bad. It’s also expensive.

There’s a perfect example of this blobification of the tax code with the personal income tax. The 1913 original was all of 14 pages long. But the 1942 Revenue Act, which brought the income tax to the middle class to help finance World War II, was 15 times as long at 208 pages. But of those 208 pages fully 162 dealt with closing, or defining, loopholes uncovered by tax lawyers in earlier revenue bills.

And while people are all more or less alike except for the size of their incomes, different industries can be very different indeed. For instance, there are,

tech firms whose only assets are a few computers and a handful of programmers to airlines and aluminum mills that run huge workforces and buy lots of heavy equipment meant to last decades. If you ignore expenses and just tax revenue, you’ll either end up giving the tech firms a hell of a deal or handing low-margin businesses such as grocery stores a tax bill for 800 percent of their profits.

Megan points out that abolishing the corporate income tax would bring howls of protest from the left that corporations aren’t paying “their fair share.” But corporations, of course, don’t pay the corporate income tax. Instead it’s paid by some combination of workers, with lower wages; customers, with higher prices; and shareholders, with lower profits. The particular combination depends on the economic circumstances of each industry. And abolishing the corporate income tax (which was, anyway, only intended to be a stopgap until a personal income tax amendment could be ratified) would have many extremely positive effects for the American economy.

  • It would then be fair to tax dividends as ordinary income, which they are not now. That means that rich stockholders would pay 39.6 percent on that income, not 20 percent as now.
  • Corporations would repatriate trillions in profits now held overseas to avoid U.S. taxes and invest much of that money here.
  • Foreign corporations would flock to the United States instead of U.S. corporations moving their headquarters overseas.
  • Corporations would concentrate on pre-tax income, which is a function of economic success in the marketplace, not after-tax income, which is a function of lobbying success in Washington.
  • Tens of thousands of tax lawyers, accountants, lobbyists, and IRS agents would be out of work and would have to find something economically productive to do.
  • Corporations would have much less interest in providing perks to their executives that the corporation can write off instead of taxable salaries.
  • There would be a race among the 50 states to lower or abolish their own corporate tax rates.

In 2013, the corporate income tax brought in $274 billion, slightly less than 10 percent of total federal revenue. That would be a considerable hit on federal revenues, but the positive economic effects would quickly offset much of that loss. The long-term effect would be to increase federal revenues substantially. If there is to be a deficit, this would be a damn good reason for running one short-term.

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Israel Now Criticized for Wanting Peace

Because there are only so many complaints that can be lodged at Israel (thought the well does seem bottomless at times), it was perhaps inevitable that the criticism of the Jewish state would produce some strange narratives. Those who feel compelled to oppose whatever Israel is doing at any given time are going to have to latch on, occasionally, to counterintuitive accusations. And a recent critique of Israeli policy fits that bill.

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Because there are only so many complaints that can be lodged at Israel (thought the well does seem bottomless at times), it was perhaps inevitable that the criticism of the Jewish state would produce some strange narratives. Those who feel compelled to oppose whatever Israel is doing at any given time are going to have to latch on, occasionally, to counterintuitive accusations. And a recent critique of Israeli policy fits that bill.

Portraying Israel as the warlike aggressor gets increasingly ridiculous, as Hamas initiates each round of violence with indiscriminate rocket attacks against civilians in much of the country, including Israel’s major port city, its capital, and the area near its major international airport. Additionally, Israeli Prime Minister Benjamin Netanyahu has exhibited restraint, attempting to stave off the need for a limited ground incursion, which has now commenced, with repeated attempts at a truce. And that, apparently, is the new objection to Israel’s actions.

BuzzFeed’s Sheera Frenkel reports on two consecutive efforts by Israel to get Hamas to “yes” in talks for a truce:

“There were talks, and they were a step in the right direction, but to declare that a cease-fire agreement was reached is premature,” said one Palestinian official currently in Cairo on the delegation. “Hamas has made it clear that their demands have not yet been met, and there are further discussions to be held.” This appeared to echo previous concerns when a cease-fire deal was announced by Israel on Tuesday, despite claims from Hamas that it had not been consulted and would not have accepted the offer.

Chief among the demands of Hamas, he said, was that Egypt open its Rafah crossing with Gaza, and Israel ease the naval blockade of Gaza.

“We do not understand the reports currently in the media, they are misleading,” said the official, who spoke on condition of anonymity as the group had agreed not to speak to media until a cease-fire was officially announced. He added that it was his suspicion that someone from the Israeli delegation leaked information to the BBC, in the hopes that announcing a cease-fire deal would pressure Hamas into agreeing to the offer already on the table.

Israel tried to get a ceasefire–not just a temporary humanitarian ceasefire, but a cessation of the current round of violence–on Tuesday, but couldn’t get Hamas to sign on. They tried again, and the Palestinians accused Israel of leaking news of an agreement in order to pressure Hamas to accept the truce. The Israelis, in other words, stand accused of being too aggressively peace-minded.

There was a similar complaint, though concerning a different era, in the July 12 edition of the Economist. The magazine ran a book review on Ahron Bregman’s latest history of the post-1967 conflict. According to the review, Bregman–who served in the Israel Defense Forces during its first Lebanon war and subsequently left Israel “unhappy about the country’s policy towards the Palestinians,” according to the Economist–accuses then Israeli Prime Minister Ehud Barak of manipulating the U.S. and Yasser Arafat into the peace process. From the review:

In 1999 Israel’s prime minister, Ehud Barak, lured Mr Clinton, Mr Bregman suggests, into one failed summit after another, providing Mr Barak with enough cover to allow him to claim that Israel had no partner for peace.

After persuading Mr Clinton to tempt President Assad to Geneva in March 2000 with the promise of ground-breaking proposals, says the author, Mr Barak back-pedalled on an earlier Israeli promise of a full withdrawal. Hours before the summit was due to start, Mr Barak insisted that Israel should keep a sliver of land, 400 metres wide, on the edge of the Sea of Galilee. Mr Assad withdrew.

Four months later Mr Barak persuaded Mr Clinton to try again, cajoling a wary Yasser Arafat to negotiate a final settlement at Camp David.

Yet Barak didn’t walk away from the deal on the table; Arafat did. Bregman seems to paint Barak as a serial flake, ending the prospect of peace with Syria and “cajoling” Arafat to a peace summit in order that Barak’s grand gamble would fail, forever tarnishing his legacy and beginning the end of his career as a potential premier and heralding the descent of his Labor Party into near-irrelevance.

No one looks very intelligent claiming that Israel is run by warmongers. So the new plan is to condemn Israel for its enthusiasm for peace negotiations. Israelis have long known that whatever they do, they’ll be criticized for it, and this appears to be just the latest iteration of Israel’s opponents’ fundamental hypocrisy.

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Downing of Plane Shows West Cannot Ignore Russia-Ukraine Escalation

On September 1, 1983, Soviet fighter aircraft shot down Korean Air Lines flight 007 which had inadvertently entered Soviet airspace on its way from Anchorage to Seoul. All 269 people on board were killed. President Reagan swiftly condemned “this crime against humanity,” which only redoubled his desire to bring down the “evil empire” (as he had called the Soviet Union earlier that year).

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On September 1, 1983, Soviet fighter aircraft shot down Korean Air Lines flight 007 which had inadvertently entered Soviet airspace on its way from Anchorage to Seoul. All 269 people on board were killed. President Reagan swiftly condemned “this crime against humanity,” which only redoubled his desire to bring down the “evil empire” (as he had called the Soviet Union earlier that year).

We can only hope for similar moral clarity today from the U.S. and Europe in the aftermath of the equally outrageous shooting down of Malaysian Airlines flight 17 over Ukraine with 295 people on board including more than 20 American citizens. The exact circumstances remain murky, but there is a strong circumstantial case, based on what we already know, that this was the work of pro-Russian separatist rebels who had been provided by the Kremlin with an advanced Buk anti-aircraft missile system. As Julia Ioffe of the New Republic notes, “there are now screenshots floating around the Russian-language internet from what seems to be the Facebook page of Igor Strelkov, a rebel leader in eastern Ukraine, showing plumes of smoke and bragging about shooting down a Ukrainian military Antonov plane shortly before MaH 17 fell. ‘Don’t fly in our skies,’ he reportedly wrote. If that’s true, it would seem rebels downed the jetliner, having mistaken it for a Ukrainian military jet.”

Certainly it would not be surprising to see the rebels, or their Russian sponsors, shooting down suspected Ukrainian aircraft. In fact, just before the Malaysian airliner went down, the Ukrainian government had accused a Russian fighter plane of shooting down one of its own fighters in Ukrainian airspace on Wednesday. Just a few days before that, Ukraine accused Russian rebels of shooting down a Ukrainian transport aircraft.

This is becoming rather too regular an occurrence to be ignored. The deaths of all those innocent passengers and crew aboard the Malaysian aircraft, who were in no way party to this conflict, makes it impossible for the West to look away from Russian aggression or for Russia to escape culpability. Even if the shooting down of the Malaysian aircraft was accidental and not ordered by the Kremlin, as seems likely, Vladimir Putin is nevertheless ultimately responsible. If you hand a bazooka to a hyperactive teenager and he destroys your neighbor’s house, the person providing the weapon is just as culpable as the one firing it.

And there is no doubt that anti-aircraft missiles, along with tanks and other advanced weaponry, have been provided to pro-Russian separatists, many of them Russian citizens and even members of the Russian intelligence and military services, by the Russian state. You don’t pick up an anti-aircraft missile at your local military surplus store the way you might an AK-47.

The question now is what we–meaning we in the West–are going to do about this outrageous act of villainy. John McCain said that if Russian involvement is proved, there will be “hell to pay.” I certainly hope so. What would this “hell” consist of?

No one is contemplating the use of Western military force against Russia or even Russian separatists in Ukraine, but certainly there is much that the U.S. and its European allies could do to provide military equipment and training to the Ukrainian armed forces to enable them to defeat Putin’s minions–something that we have been afraid to do until now for fear of triggering Russian escalation. As if shooting down civilian aircraft isn’t escalation enough.

There is also a need, as I have written before, to station substantial numbers of American ground forces in frontline NATO states including Poland and the Baltics to make clear that they will stand up to Russian aggression if directed their way. Seeing U.S. troops on his doorstep is pretty much the last thing Putin wants, and that’s precisely why we should do so. In addition the U.S. needs to end its ill-considered military drawdown and rebuild our strength to confront our enemies as Ronald Reagan did.

Finally the U.S. and Europe need to beef up their limited slate of sanctions against Russia. Just yesterday President Obama announced fresh sanctions against several Russian financial institutions and oil and gas producers which are, inter alia, being barred from the U.S. market. This stops well short of the “sectoral” sanctions on the Russian financial and energy sectors that President Obama had previously threatened, and the European Union pusillanimously refused to go even that far. The EU only promised to block future loans for projects in Russia by European development banks. Perhaps now the EU will get off its knees and join the U.S. in truly broad sanctions that will do real damage to the Russian economy.

Oh and perhaps now the French government will consider not delivering to Russia two Mistral-class amphibious assault ships that will considerably enhance Moscow’s ability to terrorize its neighbors.

I say “perhaps” advisedly because this is what should happen–but probably won’t. Even now there will be voices of detente cautioning that we don’t want to “isolate” or “corner” Russia. But if the murder of 295 innocents is not enough for the West to finally stand up to Russia’s barely disguised aggression in Ukraine, it is hard to know what it will take.

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Reform Conservatism, Foreign Policy, and Epistemic Closure

The rise of the “reformicons”–reform conservatives–is one of the more encouraging developments in the conservative movement’s introspection during its time (mostly) in the wilderness. It hasn’t said much on foreign policy, however, a fact which Ross Douthat mentions in a post on the subject. But Douthat–generally one of the sharpest policy minds in the commentariat–makes a crucial, and inexplicable, mistake: he ignores the debate taking place on the right, rather than joining it, and then wonders where the debate is.

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The rise of the “reformicons”–reform conservatives–is one of the more encouraging developments in the conservative movement’s introspection during its time (mostly) in the wilderness. It hasn’t said much on foreign policy, however, a fact which Ross Douthat mentions in a post on the subject. But Douthat–generally one of the sharpest policy minds in the commentariat–makes a crucial, and inexplicable, mistake: he ignores the debate taking place on the right, rather than joining it, and then wonders where the debate is.

In making the case for the necessity of an expanded debate on foreign policy, Douthat references two prominent paleocons, a left-wing opinion writer, and the “Israel Lobby” conspiracist Andrew Sullivan, none of whom has a fresh or coherent take on GOP foreign policy. In his one exception, he briefly mentions his coauthor Reihan Salam, a self-described neoconservative, but quickly insists that Salam’s worldview is “highly idiosyncratic, and takes as a given that the Iraq invasion was a folly”–in other words, he’s far enough removed from what Douthat refers to as “Cheneyism.”

I have a few thoughts. The first is that, if I conducted a discussion on domestic-policy reform conservatism while excluding actual reform conservatives, how informative do you suppose that would be? The second is, Douthat worries about affiliation with identifiably neoconservative and hawkish organizations, which presumably is why he doesn’t even mention our own Pete Wehner, himself one of the prominent reformicons.

And that leads to the third point, which is closely related. I understand the realist right’s desire to see their own policy preferences reflected in the Republican Party’s agenda. And I welcome them to the debate many of us are already having, regardless of the mistakes I think they made. For example, the realist approach to Russia has been a complete and total failure–one with consequences. The realist fantasy of strongman-stability in the Middle East is currently in flames, with the death toll rising (and rising and rising). The realist take on the Israeli-Palestinian conflict, as we see, is disastrous, etc. But I’m happy for the realists to finally be engaging this debate, and I’m not interested in putting them in cherem just because they’ve been wrong as often as they have.

If you can’t name any hawks you’ve been reading on the subject, perhaps you haven’t been reading enough hawks. So let me do some outreach. Here at COMMENTARY, we’ve been having this debate for years, and it continues. Here, for example, is John Agresto–who served in the Bush administration in Iraq–critiquing the policy of promoting democracy in the Middle East and Central Asia. The article is followed by Abe Greenwald’s response. It’s a thoughtful debate on the relationship between democracy and liberalism and the thorny issue of culture.

More recently, here is my essay on the war on terror in which I engage the criticism of it from all sides–left, right, and center, and offer my own critique of some of the right’s approach to the war on terror. Here is Joshua Muravchik on “Neoconservatives and the Arab Spring.” Those are broad topics, and perhaps reformicons would like discussions with specific relevance to current debates. Should we arm the Syrian rebels? Here is Michael Rubin arguing no; here is Max Boot arguing yes. Here is Pete Wehner on nonintervention and global instability. Here is Michael Auslin on Ukraine and North Korea; Jamie Kirchick on Russia; Jonathan Foreman on Afghanistan.

I could go on. And it’s certainly not just here at COMMENTARY either. I realize that none of the links I’ve offered are in themselves a complete blueprint for a foreign-policy agenda. But neither is vague nostalgia for the days of James Baker. (Reform conservatives looking to shake things up by revivifying the administration of George H.W. Bush because they’re unhappy with the administration of George W. Bush is no more groundbreaking or creative than those on the right who just repeat the word “Reagan” over and over again–which, by the way, includes the realists’ beloved Rand Paul.)

My point in here is that there has been an ongoing debate, assessment, and reassessment of conservative internationalism, neoconservative foreign policy, and interventionist strategy on the right. If conservative reformers truly want a debate, they’ll need to engage the arguments already taking place instead of talking amongst themselves about the conservative movement’s hawkish establishment.

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Israel’s Critics Wage War on Reality

It tells you all you need to know about Hamas that its biggest victory to date against Israel–one that is no doubt being celebrated in the fortified bunkers that house its leadership–was the death of four young Palestinian boys on a Gaza City beach on Wednesday. The boys were apparently killed by an Israeli bomb or missile.

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It tells you all you need to know about Hamas that its biggest victory to date against Israel–one that is no doubt being celebrated in the fortified bunkers that house its leadership–was the death of four young Palestinian boys on a Gaza City beach on Wednesday. The boys were apparently killed by an Israeli bomb or missile.

Needless to say, the Israel Defense Forces do not deliberately target children–any more than do the armed forces of the United States or other civilized powers. That is both morally abhorrent and strategically stupid: What possible purpose can be served in killing children? But while deeply harmful and counterproductive for Israel, this inadvertent strike was a big win for Hamas. It produced the most coveted of victories in modern warfare: a front-page picture, taken by the storied New York Times photographer Tyler Hicks, of one dead boy lying on the Gaza sand and another being carried in a man’s arms.

There is no surer or better way for Hamas to make its propaganda point, which is the only point of this entire exercise from its standpoint. Hamas, like other terrorist groups, knows it cannot win a military victory against a much more powerful enemy, but it can win a public-relations victory by fostering the illusion that Israel is the aggressor and the Palestinians its victims.

Such an image is as powerful as it is misleading. All informed observers know the facts.

They know that Israel accepted a cease-fire to end this conflict while Hamas rejected it.

They know that Israel gave up all of the Gaza Strip to the Palestinians in 2005 in the hope that peace would break out but that the result has only been an unending series of attacks on Israel that no nation could possibly tolerate.

They know that the IDF is careful to keep civilian casualties to a minimum but this is hard to do because Hamas deliberately places its headquarters and rocket-launching sites in the midst of civilian neighborhoods in the knowledge that this will either deter Israeli strikes or, if Israeli strikes occur nevertheless, they will result in collateral damage which Palestinian propagandists can use against Israel.

They know, finally, that it is Hamas, not Israel, that indiscriminately targets civilians by firing hundreds of rockets into Israel seemingly at random.

Israel is, in some ways, a victim of its own success because its Iron Dome anti-rocket system has shot down so many of the Hamas rockets that only one Israeli has been killed in the entire war–and he was a victim of a mortar shell, not a rocket. In the battle of victims, Israel is losing–there are more dead Palestinians than dead Israelis. But that does not make the Hamas cause just, any more than the fact that, in World War II, the U.S. armed forces inflicted a lot more casualties on Germany and Japan than they themselves suffered made the cause of the Nazis and Japanese militarists a just one.

Those are the incontrovertible facts. But what are facts before the power of an image?

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