News Release

October 18, 2005

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Cato Scholar Comments on the Bush Tax Panel Discussions Today

Chris Edwards, director of tax policy studies at the Cato Institute, had these observations about today's Advisory Panel on Tax Reform:

"The Panel's income tax reform plan would make some positive changes such as eliminating the double-taxation of dividends and treating U.S. businesses on a territorial basis with regard to their foreign profits. Both of these changes would increase U.S. business competitiveness and spur investment. However, on both the individual and business parts of this simplified income tax, the proposed top tax rates were still too high. For example, the proposed 32 percent corporate rate would still be higher than the 28 percent average corporate tax rate in Europe.

"The Panel's consumption-based tax plan resembles the Steve Forbes flat tax in its basic structure, except that it has multiple rates on individuals rather than a single rate. The business part of this plan is a 'cash-flow' tax, which would be vastly simpler than the current corporate income tax. The cash-flow tax plan would be territorial, and would replace today's complex depreciation system with simple 'expensing,' or immediate write-off, of investments. As some of the panelists noted, expensing would spur rising investment in factories and machines, increase worker productivity, and raise wages. This plan would represent a huge leap over the current income tax in terms of simplicity and economic efficiency.

"The Panel rejected a plan that included a value-added tax (VAT), which is a good thing because VATs fuel government growth, as they have in Europe."

• "Replacing the Scandal-Plagued Corporate Income Tax with a Cash-Flow Tax," by Chris Edwards, Cato Policy Analysis no. 484, August 14, 2003.
• "Options for Tax Reform," by Chris Edwards, Cato Policy Analysis no. 536, February 24, 2005.

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