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The Naked Truth of Tax Policy

More than three years have passed since then-treasury secretary nominee Paul A. O’Neill made one of the first of his now-famous public exposés.  To the smug applause of the U.S. Senate Finance Committee and muffled chortling, he boldly exclaimed during confirmation testimony that he was not planning simply to reform the corporate income tax; he wanted to eliminate it altogether.  To these elder statesmen, it was as if Mr. O’Neill had the audacity to utter the equivalent of the innocent child’s observation in the famous Hans Christian Andersen fairy tale.

Today, Secretary O’Neill has been abruptly returned to the private sector, while the U.S. corporate tax not only survives but has been elevated to the fourth-highest corporate rate (35 percent) among developed nations—higher even than those of Sweden, Germany, and France and almost triple Ireland’s 12.5-percent rate.  No one has seriously pursued legislation to implement Mr. O’Neill’s recommendation.

The problem was not bad timing—the Enron era, with its anticorporate backlash, had not yet begun.  Nor were the senators blind to his point.  They knew O’Neill’s observation about our broken tax system was as right as it was blunt.  Corporate taxes are just a convenient way to disguise the true tax burden that the consumers of corporate goods and services (that is, you and...

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