I rarely quote posts at Cato but I found this one by Jeffrey Miron, which largely consists of a lengthy quote from a previous Cato post, worth noting. It’s about the Tax Cut and Jobs Act of 2017:
In brief, the corporate income tax changes generated substantial benefits, but several claims about these benefits (only a minimal reduction in revenue, with a large increase in wages) were significant exaggerations.
This passage is particularly interesting:
Second, taxes matter for corporate investment. Firms facing larger corporate tax cuts invested more than firms facing smaller cuts. Three empirical approaches indicate that the tax cuts increased total tangible corporate investment by 8–14 percent. This response was far too small to offset the forgone tax revenue.
which is almost exactly what I’ve been saying for the last six years. To remind you I supported cutting the corporate tax cuts on efficiency and competitive grounds. The economically most efficient corporate tax rate is zero. Claims about “corporations paying their fair share” is political posturing rather than sound economic policy. However, I have thought that the revenue losses from the cuts in the corporate tax rate needed to be made up by increases in not just personal income tax rates but revenue from personal income taxes. That was irresponsible.
I also think that we need considerably more business investment than at present but for that to happen much more narrowly targeted policies would be required. I doubt that the wealth taxes being proposed by some would accomplish that.
I am not a “tax the rich” guy, but corporations use government services. Ford Inc. benefits from NORAD protecting their plants from nukes. I doubt that the Soviet Union, Russia, China, or France has my neighborhood on their target list.
Everytime I open a software package or agree to a Terms of Agreement (TOS), I have entered into a contract with a corporation, and if I pirate that software or violate the TOS, I will be taken to a government court system. Again, they benefit more.
According to libertarian, anarcho-capitalist, and Objectivist philosophy, users should pay for the services they use, but this seems to be an exception. The funding of this minimal, no frills government is never explained.
In general, I do not support a VAT or national sales tax. Both are bad, but a VAT is truly insidious. (A VAT is not a sales tax.) I would accept a VAT in place of no corporate taxes, but the tax code would be no different than it is today.
The country is predicated upon future earnings exceeding present earning plus debt minus costs, and this is a public, private, and personal formula for success. It is madness. The future earnings cannot keep up, and there is no way to make up the shortfall with taxes.
When the US and Europe collapse, China and many of the BRICS will be taken down. Who do you think is going to buy their exports and with what currency? Russia may be OK, but they have been a basketcase for 600 years. (Read some history, and then, get back to me. No, read something more than Wikipedia crap.)
Again, things got away from me.
You’ve just explained why I am not an anarcho-capitalist.
I used to consider myself a minarchist but I have realized that is circular.
Although I support replacing the income tax system with a VAT I also recognize that it would kill state and local governments. Some solution to that must be included.
Musings:
I have no idea how one really attributes the real value in a VAT scheme to the various steps from inception to sale. It would no doubt result in the same type of lobbying as exists in the current code.
Tasty
I understand the desire to have the beneficiaries of government services pay for them. The details are hard. Not to sound too academic, but a “corporation” is just some papers filed (generally) in Delaware. So one really is talking about who foots the bill for tax expenses foisted upon the corporation. The main candidates are capital (owners), customers, labor and suppliers. The propagandists assume its all eaten by ownership. Nope. All 4 share in the cost, but it is generally acknowledged that ownership and customers bear the most, with labor not far behind. Its a horrible system, but designed as such for ideological reasons, and the ability for politicians to get lobbying money. Zero corporate tax.
I think Kamala Harris’ proposal to tax unrealized capital gains has to be the most stupid and destructive proposal I have ever seen. If she means it anyone who votes for her is voting for – and I am not exaggerating – a depression. Who is this idiot?
@Drew
Once I was a libertarian, Objectivist, and anarcho-capitalist, in that order. Now, I am not sure what I am. I am not a leftist, but I know that capitalism must be regulated.
My general thesis is that there are two forms of governmental-financial systems – feudal and fascist. There may be a third combining both. Our host correctly defined fascism in a comment a previous post. Any disagreements can be taken up with Mussolini. Feudalism requires serfs (slaves) to be tied to a place and job.
I do not feel like writing a dissertation, and hopefully, you can get the gist – agree or not.
I do not know how tax law works, and I would rather not become an expert. My point is that a corporation uses government services, and somebody needs to pay for those services. A shipping corporation benefits from the US Navy protecting international sealanes. I fail to see why they should not pay for that, at least theoretically.
Do you really think “the man behind the tree” can pay all the taxes?
NOTE: I realize spending and borrowing is beyond out of control, by both parties. I realize that even acknowledging a theoretical tax burden can be fraught with political danger, but I am not interested in political arguments. I do not have a solution, but I realize that everything proposed is unrealistic.
“My point is that a corporation uses government services, and somebody needs to pay for those services. A shipping corporation benefits from the US Navy protecting international sealanes. I fail to see why they should not pay for that, at least theoretically.”
I completely agree. I guess I’m saying I just don’t know how to do it. As we have seen, in particular in the Obama and Biden administrations, there are corporate favorites. Obama was a shakedown artist in Chicago. He still is. Biden? Same. So certain corporations have fallen inline. Some, like Facebook, with arm twisting. And let’s not even address lobbying. So a peanut butter slathered all over tax approach has been adopted…………….favored interests excepted. I find the issue to be the playground of dishonest pols like Harris.
Where the tax incidence really falls: capital, labor, consumer. I don’t know. I just know that tax expense to a corporation is no different than raw materials, labor, or the utility bill. They will price accordingly to the consumer. And if the consumer says “price too high; no sale” then the business contracts, and capital moves elsewhere. Its not rocket science. So maybe a halfway house is a modest peanut butter tax: 15%, for government services. I have no definitive algorithm. But Harris is a disaster. An ideologue with zero brains and economic understanding. Look at our national debt. We need the foot on the growth accelerator, not brain dead brake policy. This woman is very, very dangerous.
I don’t know what the man behind the tree reference is, Tasty.
“Don’t tax you. Don’t tax me. Tax the man behind the tree.”
@Drew
I will leave the political debates to you and your political opponents. Politicians make whores look like respectable businesswomen. Almost none have any concern for the welfare of the country, and it is not party specific.
The fairest solution to pay for government would be a fee based approach – road tolls, bridge tolls, water usage, air usage, etc. There would need to be a formula for military usage, but we could dissolve or seriously cut back many regulatory agencies.
The FAA, FDA, FCC, FTC, etc. could be opt-in. You could fly on an FAA approved airline or take your chances on the cost efficient airline – your choice. I suspect your daughter will be on the FAA approved flight.
The tax fight is mostly between the top 10%, 1%, and 0.1%. Nobody I know wants to “tax the rich”. We know you have it better – more power to you. We just want to be left alone.
It is the top 10% who are jealous of you and hate you. They want to drag you to their level. I suspect that the top 0.1% want to knock down both, but that is just a guess.
None of this means that you should pay no taxes.
“The FAA, FDA, FCC, FTC, etc. could be opt-in. You could fly on an FAA approved airline or take your chances on the cost efficient airline – your choice. I suspect your daughter will be on the FAA approved flight.”
This sounds like I’m anti regulatory to an extreme. That’s false. I simply point out that it’s a weak read to lean on. Regulatory capture is real. Regulatory incompetence is real. It’s interesting you cite the FAA. I’ve said, at least until recently, the commercial air industry is almost a model for regulation. Not so much now. What the hell is Pete B doing?
I don’t really know where you are going with the tax stuff. Of course they want to tax me. They want me to pay for all their desires. After all, I’m “rich” and have ill gotten gains. This is standard Dem political speech.
The fact is, half the country pays no income taxes. They want their neighbor to pay. And vote accordingly. Moral bastions they are. (Snicker). Skip the payroll tax bullshit argument. People view that as prepayment of future benefits.
I know I’m well off. I don’t consider myself rich. I know the truly rich. They are different. I don’t travel by private plane.
I have a beautiful mountain home. I wake up to a great room with a 180 degree view of the mountains. It’s different every day. I have a couple fancy cars, my beloved Porsches. But I take the same shower you do. I do yard work. My fiancé cooks. Dinner is same as yours. La Birnidin or NoMi doesn’t exist here. I only want to go to NYC or Chicago or LA once a year.
You aren’t the only one who wants to be left alone. I’ve paid millions and millions in taxes over my lifetime to the collective effort. What’s enough? Progressives know no bounds.
And yet rarely is any measure introduced that will raise the effective tax rate. There are always massive exceptions and exclusions. The tax code is a full employment program for tax lawyers and accountants.
The focus is on nominal tax rates. That’s political posturing not policy. To head off possible retorts look at the effective tax rates paid by the highest income earners 50 years ago compared with now. Despite the drastic changes in the top tax rates the effective tax rate has changed relatively little. What has increased is the deficit.
@Drew
What they really want is power, and they want you to submit. Look at the sales tax deduction cut. When they got the tax increases they begged for, they squealed like pigs.
The reality is that there is not enough money to fund all the crap in the US budget.
There are government services that benefit companies and should be paid for, at least in theory. Not paying is called “freebies”. I offered an option for regulatory agencies, but this was in the context of a fee based taxing system.
I see the 10% manning the barricades to fight the injustice of the 1% for the 90%. There are some of the 90% at the barricades, and they are called idiots, not even useful.
Believe it or not, I am glad that you have nice things. As long as you are not trying to take what I have, I do not care, and that is how the people I know feel. I suspect most people who work feel the same way.
(You may have super fancy golf clubs, but I just got a hole drilled into my skull.)