Newspaper article Charleston Gazette Mail

Trouble with Clintons Profit-Sharing ; Complex Tax Code Needs Fewer, Not More Tax Breaks

Newspaper article Charleston Gazette Mail

Trouble with Clintons Profit-Sharing ; Complex Tax Code Needs Fewer, Not More Tax Breaks

Article excerpt

WASHINGTON Hillary Clinton has just given us an object lesson presumably unintended demonstrating why our tax system is such a complex mess. The main reason is this: Politicians of both parties cannot resist the temptation to use the tax code to promote the latest political fad or to please favored constituencies.

As a result, tax breaks (aka, incentives, loopholes and preferences) complicate and clutter the tax code. Political merchandising overwhelms simplicity.

A case in point is Clintons proposal to provide a tax credit to companies that adopt profit- sharing for their workers. As a political advertisement, the proposal merits an A. As public policy, it earns at best a C.

Profit-sharing is not a bad idea. For starters, it emphasizes the mutual interest of workers, managers and investors in a firms welfare. As Clinton recently put it in a speech: Profit- sharing that gives everyone a stake in the companys success can boost productivity and put money directly into employees pockets. Theres also a second benefit that Clinton didnt mention. Profit-sharing makes companies more flexible. If workers compensation is partially tied to profits, then wages and salaries will decline in a recession or when a firm faces tough times. Lower pay will help firms stay competitive and survive.

Politically, profit-sharing is shrewd, especially for Democrats. Corporate profits are near record highs; why not share some of that with workers? This plays to Democrats populist wing, which has made pay increases a crusade. But it does so without vilifying business, thereby mollifying more moderate Democrats. It emphasizes Clintons common sense, as a campaign fact sheet says.

Her proposal seems simple. She would provide a 15 percent tax credit thats a direct tax cut for profits that companies distribute to workers. On a $5,000 profit-sharing payment to a worker, a company would save $750 in taxes (thats 15 percent of $5,000). The credit would phase out after two years, presumably after demonstrating its value. The Clinton campaign estimates the cost at about $20 billion over a decade.

Its a win-win, argues Clinton.

Well, maybe not. Creating the tax break would pose huge practical problems, and the economic advantages of profit- sharing may be overstated. …

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