The Wonk Room

The McCain Tax Plan: The Mother Of All Corporate Loopholes

Our guest blogger is Robert Gordon, a Senior Fellow at the Center for American Progress Action Fund.

As recently as 2001, John McCain criticized a tax bill because it would “give billions of dollars in tax money to big corporations.” But now he is proposing $1.7 trillion in tax breaks for corporations.

The most disturbing part of his plan has received the least scrutiny. McCain has proposed a seemingly technical change in the way companies treat deductions on their purchases of equipment and technology. Rather than requiring companies to deduct part of the costs over several years (known as depreciation), he would allow companies to deduct the entire cost in a single year (known as expensing).

When experts discuss expensing, they invariably couple it with the elimination of the deduction for interest. But McCain has not offered that proposal.

As a result, he has created a massive new tax loophole. In a new report for the Center for American Progress Action Fund, Professor Reuven Avi-Yonah of the University of Michigan Law School writes that McCain’s failure to deal with the interest deduction would…

open up almost unlimited opportunities for sheltering income. In fact, for many corporations, the proposal would result in a negative effective tax rate on many investments — rather than paying a tax on profits the corporation would get money from the government in addition to their profits.

According to the report authored by George Bush’s own Commission on Tax Reform, a plan structured like McCain’s would “result in economic distortions and adversely impact economic activity.”

Just what America needs. Avi-Yonah’s study has much more. Read it here.