I genuinely, sincerely wish I believed that Brian Domitrovic’s assertions in his Forbes article about cutting taxes was right:
The big item in the Trump proposal is the cut in the corporate tax rate, reduced from 35% to 15% and expanding its definition to include small businesses. Such a cut would undermine the value of exemptions from and avoidance of the current corporate rate, things that constitute big-company strategy in this slow-growth era. Such a cut would refocus American business on making things and selling them—the stuff of real growth.
The rest of the plan, the trimming of the top personal income-tax rate, the reduction in the number of personal-rate brackets, and the cashiering of the estate tax and the alternative minimum tax, will have similar effects. These reforms will prompt Americans to pay less attention to the tax consequences of what they are doing and be themselves. And when Americans act naturally, booming growth and mass affluence is the result.
Why won’t cutting the business income tax rate result in more businesses buying back their own stock rather than “making things and selling them”? And why will cutting the personal income tax rates “have similar effects”? Why won’t people just buy more stuff made in China, France, or Germany? Which will result in negligible effects on the domestic economy. Distribution is pretty darned efficient these days. The short version: Amazon could sell a multiple of what it does now without adding many employees.
I support a cut in the business tax rate because it’s inefficient and giving companies incentives to engage in various strategies, e.g. inversions, to avoid taxes. I’m skeptical about cutting the personal income tax rate because of recent experience. Look at how short-lived the stimulative effects of the Bush tax cuts were. We just don’t have an economy in which cutting the personal tax rates will stimulate any more.
If you cut the rate to 15%, companies will spend almost as much effort to avoid paying that amount of tax. No big company is going to just pay the tax because it is only 15%. Not only did the Bush tax cuts not provide much of an economic boost, they did increase deficits.
Just eliminate the entire corporate tax. Lets see companies compete on competence and innovation. Wonder how many survive?
Steve
That’s why I make the argument I do. Cutting the business income tax in half brings it within OECD norms. That will reduce the incentives for inversions.
I don’t believe that Democrats will stand for eliminating the business income tax entirely but the leadership is on the record on not rejecting a substantial cut in the rates. Republicans could eliminate the tax without Democratic support but that’s no way to run a railroad.
@steve
Just eliminate the entire corporate tax. Lets see companies compete on competence and innovation. Wonder how many survive?
“Don’t bogart that joint.” I have no idea of what you are smoking, snorting, or injecting, but pass it around.
I do not oppose lowering or raising the corporate tax. Philosophically, I have a big problem with raising it much less its existence, but reality has sobered up my philosophical basis.
I suspect that companies will spend their windfall by doing what they do best. The ones that use the Government to stifle their competition will do more of the same. Those companies that are part of the financialization sector will continue. (This is not limited to financial companies.) Those companies that invest in their company will continue.
If reality is different than my expectations, I will change my philosophical basis and, therefore, my expectations.
“Why won’t cutting the business income tax rate result in more businesses buying back their own stock rather than “making things and selling themâ€? ”
Because businesses make and sell things using internal cash flow, external financing, or various dislocations to those based on their perceived investment opportunities. They buy back their stock – return capital to investors – when they don’t perceive investment opportunity.
Why do young companies raise fresh capital, but utilities pay high dividends?
Apple, the company with the highest capitalization in the world by most reckonings and by most reckonings likely to be the biggest beneficiary of a corporate tax cut, is holding large amounts of cash. That alone would suggest they don’t perceive investment opportunity. What will Apple do with its tax cut:
Probably some of all three but I think that #3 or #4 are the most likely. Neither of those will do much to increase economic growth. And that’s my point. While there are other arguments to support it, I don’t think we should expect much boost from a corporate tax cut.