A flood floor vote, corporate taxation and Herman Cain’s 9-9-9 plan
The U.S. Senate, riven as always by internal dispute, continues to sit on one of the few major bills—flood insurance reform—where a rough sort of bipartisan consensus appears to exist. Although, of course, disagreements remain over the flood bill, the House, Senate and two parties are closer together on the bill than they have ever been in the past. Coastal legislators have essentially dropped efforts to add wind insurance to the flood program and just about every member of both chambers has now voted for legislation that would raise rates for people living in risky areas.
Hardly anything in the House-passed bill (or the Senate’s) seems like a deal killer. I’m ardently opposed to the minor additional coverage for business interruption that the House bill has added but, at the end of the day, there’s enough good stuff even in the House bill to make it more good than bad.
Here are three reasons why the Senate would do well to bring up the flood bill sooner rather than later:
- The bill would create a degree of certainty that would benefit the economy. The flood insurance program has straggled along with a series of temporary reauthorizations and lapsed on at least a half dozen occasions. This wreaks havoc with real estate closings and makes investors less certain. Congress, through endless debates over the debt ceiling, has already helped to create economic uncertainty. A five-year reauthorization would benefit the economy.
- The bills before the House and Senate are good compromises. I’d prefer a bill that went much further in moving the program towards the free market for flood insurance and protecting the environment. Many real estate and construction interests, I’m sure, would like a bill that cut rates and adds coverage. But no group will get everything it wants. The bill is not enormously disruptive and, on balance, it stabilizes (but doesn’t fix) the flood program.
- The bill is an accomplishment that members of Congress can run on—and they’ll need something. Except for the recent trade deals, it’s fair to say that the current Congress has accomplished very little besides destabilizing the economy through the rather pointless debate over the debt ceiling. While flood insurance certainly isn’t a sexy topic, it’s a reasonably important piece of legislation where legislators can show they are getting things done. And that’s a good enough reason to vote for it.
The offshore reinsurance tax bill (aka the Neal Bill, aka the Menendez/Neal Bill, aka the “Worst Tax Reform Idea Ever Bill,” aka the “Let’s Start a Destructive Trade War Act”) got introduced this past week. Although it has a slightly different window dressing this time around, the proposal remains just as sinister as ever. It has manifest problems. To name just four, it’s likely to violate WTO rules, is bad for consumers, would encourage “onshoring” of an industry (catastrophe reinsurance) that actually brings the greatest benefits when it’s offshore, and won’t produce the promised revenue. But, more than its immediate ills, the bill brings into focus the inanity of taxing corporate entities in the first place.
Let me explain: The U.S.-based corporations (Chubb and W.R. Berkley most prominently) that are pushing for the bill are so focused because the current U.S. tax system does, indeed, sometimes put them at a disadvantage relative to companies with domiciles elsewhere. The disadvantage, however, stems from the U.S.’s high statutory marginal rates and very high compliance costs rather than the fact that other companies can engage in ordinary business practices involving offshore affiliated reinsurance. No system that retained any corporate income tax, however, would ever truly “level the playing field” for U.S.-based companies, as long as some company somewhere has a zero corporate tax. Right now, the federal excise tax designed to even things out between U.S. and no-tax jurisdictions is itself unfair and denies U.S. consumers the ability to “import” lower taxes.
And corporate income taxes are nonsensical anyway. Corporations, since they aren’t people except as a matter of legal fiction, can’t actually pay taxes. Some person, somewhere, will pay any tax assessed on a corporation. Corporations are loathe, understandably, to make their managers or stockholders pay them so—unless they are in hyper-competitive markets—will typically try to pass them onto the parties least able to “exit.” If they have lots of market power (say a monopoly utility) they’ll pass them on to consumers. If they have less, they may try to squeeze vendors or lower-level employees. But whatever happens, corporations themselves simply can’t pay taxes at all. The burden, instead, gets distributed to the weakest party and that’s seldom, if ever, good public policy.
Thus, if the U.S. really wants to fix things for everyone, it would do best to set the corporate income tax to the only truly fair rate: Zero.
I frankly don’t understand how Herman Cain’s 9-9-9 would work, if it’s fair, or what it would do to revenues. But I do think that it has done one great service for the country: it’s the most serious plan advanced by a leading presidential candidate that does away with the very troublesome mortgage interest deduction. The deduction does little to promote homeownership but does tremendous damage to the efficiency of our revenue system, while encouraging unsustainable inflation in real estate prices. And that alone makes the plan worthy of further study in my book.