Retroactive Taxation and the Baucus Proposal
In this policy review, Michael Schuyler notes that Senator Max Baucus (D-MT), chairman of the Senate Finance Committee, has suggested numerous changes in international taxation, tax enforcement, and the tax treatment of capital costs. The centerpiece of the plan is a cut in the federal corporate income tax rate. To pay for the lower rate, the plan would expand the definition of taxable income. The current proposals are “intended to be long-term revenue neutral.” However, it is likely the plan would be a net tax increase in the short term. The proposal includes three major, retroactive tax increases that will be used to pay for the corporate tax rate reduction. Retroactive tax increases are not unprecedented and may be legal, but they do raise serious policy issues and more than a few eyebrows. They smack of breach of faith, and they have the potential to discourage future economic activity by undermining certainty and trust in the tax system and the government.