Over all, the richest 1 percent pay 33 percent of their total income in taxes; if rates were changed so they paid 40 percent, it would generate $170 billion of revenue in the first year, according to the nonpartisan Tax Policy Center.
There is rare bipartisan consensus that closing loopholes in order to lower the top corporate rate of 35 percent would help American businesses compete globally. But there is no agreement on which loopholes to close or where to set the rate.
One sensible idea would be to end or reduce the corporate deduction for interest paid, which would strengthen corporate finances by reducing the incentive to overborrow. The tactic known as like-kind exchanges, in which corporations defer tax on the sale of real estate and other assets by buying other assets with the proceeds, started out as a break for farmers but has become a tax-avoidance juggernaut for businesses and the well-to-do. It would also be a good idea to scale back accelerated depreciation allowances that let businesses write off investments faster than assets actually wear out. Speedy write-offs for luxuries like corporate jets could be eliminated altogether.
But even before lawmakers get into the weeds of corporate write-offs, they should agree to close a single huge loophole: the ability of corporations to defer tax on profits earned abroad or placed in overseas entities through accounting maneuvers. Intended to allow companies to more easily invest the profits abroad, this benefit has morphed into an abusive tax shelter that now shields $2.6 trillion.
To tax the untaxed sums, Democrats should give up their opposition to granting corporations a discounted tax rate for the profits they bring home. Republicans should give up their support for only a voluntary repatriation at a near-zero rate. A compromise would give corporations a modest discount but require them to pay the tax and prevent them from stashing untaxed profits abroad anymore.
In previous tax reform proposals, both Republican and Democratic, these sorts of measures have enabled the top corporate rate to be set at 25 percent to 28 percent — a reasonable goal if lawmakers find the will and the way to actually end the targeted subsidies.
New forms of taxation are also needed. Even prominent Republicans like James Baker III, George Shultz and Henry Paulson Jr. support a carbon tax imposed on emissions to reduce greenhouse gases. Theirs would pass the proceeds back to taxpayers to compensate for higher…