The Corporate Tax Rate Arms Race

A https://www.the-american-interest.com/2017/12/21/ladies-gentlemen-take-places/ is good for all of us.

As I noted on Twitter, many people, ignorant of economics, are going to be surprised at how little reducing corporate tax rates will have on government revenue. Because corporations don’t pay taxes; they only collect them.

Corporations will “pay” less tax, but shareholders and employees will end up paying more, because their income will go up, and the increased economic growth from reduced prices will result in additional revenue as well.

14 thoughts on “The Corporate Tax Rate Arms Race”

  1. Former Treasury Secretary Robert Rubin, whom the TV financial commentator Jim Cramer praised as “Best ever . . . since Alexander Hamilton”, was on a Sunday talk show defending President Clinton wanting to tax capital gains at the same rate as ordinary income, and I remember what he said as if-it-was-yesterday.

    According to then Secretary Rubin, “The tax revenue has to come from someplace, in the end, so it doesn’t much matter whether capital gains are taxed at a lower rate or not.”

    One could argue that tax revenue has to come from someplace, so it doesn’t much matter what the corporate rate is set at. One could also argue that it doesn’t matter what any of the tax rates are at, because it all has to come from someplace. And that someplace is the hidden tax of the inflation “baked into the system” by the massive deficit financing to pull us through the 2008 Global Financial Crisis.

      1. That’s the point, which Robert Rubin should know if he was the best Treasury Secretary since “Alexander Hamilton”, although perhaps Mr. Rubin was staying the correct side of the president and the political faction he was serving?

        I think the central purpose of the tax reform was to lower the corporate tax rate to bring it more in line with our major trading partners, who are not screaming Libertarians who are strangers to paying for social programs through taxes, so as to repatriate jobs.

        This is a hard sell besides the only thing people know at this point is that a lower corporate tax “helps the rich” and apart from that and as you just said, “no one knows (were the corporate tax revenue) comes from.” So the tax had to have a lot of “sweeteners” in it to lower individual taxes.

        Parts I didn’t get include the virtual elimination of the itemized deduction by greatly raising the standard deduction and restricting the itemized deductions for state and local taxes and interest. I don’t see this as any kind of “tax simplification” because you just copy some numbers into TurboTax and it figures it all out for you. Charities and non-profits receiving donations could be the worse for this. There is also the emotional component of being demoted from a Schedule-A filing taxpayers to being a working stiff taking the Standard Deduction.

        It was a near thing they took out the “tax tuition remission as income” provision, which would have wiped out the whole research university undertaking. Yeah, yeah, universities are giving advanced degrees in Basket Weaving Studies, we are graduating even too many Engineering PhDs for the limited number of positions requiring that credential, even the Engineering departments have gone all squish and wobbly on “alternative energy”, “sustainability” and “CO2.” But this provision would have really put the hurt on the Federal Government in its NIH (health) and the NSF (other-than-health STEM) agencies.

        And it does nothing about the terror of filling out Schedule D when one sells any kind of investment, although one of the obscure tax provisions slipped into Obamacare was that if your investments are through Vanguard or Fidelity, they have to calculate your investment “basis” and report your Schedule D information to you.

        Maybe one good thing to come out of this is Congress took Glenn “Instapundit” Reynold’s advice on raising taxes on wealthier Blue State taxpayers, whose representatives have long advocated for the “near wealthy” to “pay their fair share out of civic duty.,” That and taxing the Harvard University endowment?

        Finally, zeroing the “Roberts Tax” rate in the Affordable Care Act was probably the most sensible, politically achievable thing to do with “Obamacare”? The Federal Government remains on the hook financially expanding Medicaid and subsidizing the Exchanges on a means-tested basis, but the Individual Mandate (which Candidate Obama once opposed) is gone (at least for now)?

        1. That Jim Cramer could say with a straight face – or at least as straight a face as he ever seems to manage – that Robert Rubin was “the best Secretary of the Treasury since Alexander Hamilton” simply demonstrates that Jim Cramer is at least as big an ass as he’s always seemed to be, not that his statement should be given any credence. Your mileage apparently varies a lot.

  2. Since this is behind a paywall, I can only make assumptions. If this is about complaints from the EU, I find it hard to believe that they will seriously try to match the tax cuts.

  3. Govt. produces no revenue. So why would we listen to anything they have to say about taxes?

    Imagine if the government collected no taxes. Do we really believe the people of this country wouldn’t find a way to pay for essential services and maintain infrastructure? There is no service the govt. provides that could not be better provided by private companies in competition.

    1. I am just waiting for someone in my non-virtual social sphere to start ragging on the Corporate Tax Cut and to respond, “A corporation is just a name for something we do together.”

      OK, maybe not quantifiable revenue, but the treasure put into our unequaled Defense Department along with the contribution of blood and sweat of our volunteer service members, such protects International Trade, Commerce and the exchange of Intellectual Property. Yes it is an international version of the order maintained by the police allowing you to go about your neighborhood without being hit over the head, or if at least if your neighborhood is socially functional enough the police can play that role.

      Even if you or even someone you know without many degrees-of-separation hasn’t been hit over the head, the prospect of being hit over the head degrades one’s quality of life a lot. A same goes for terrorism and piracy, which is on the bottom rung of what bad actors do internationally. What’s the big deal of having a few container ship crews ransomed, what is the big deal sacrificing a few commodity traders to some people with a grievance, but such affects you in many indirect ways.

      There is also the intangible of Liberty? Terrorists and others taking “direct action” put a damper on how a person can think, believe and even act in daily life. Is there a revenue calculation for that?

      As to the Social Safety Net, I take the utilitarian view that if it is your conscience bothering you, you can donate to the United Way and we don’t need the Safety Net for moral reasons. The Social Safety Net is a security function in the sense that it prevents a large function of your neighbors from becoming so desperate that they hit you over the head to take your stuff. OK, people still hit you over the head and take your stuff, especially when communities “don’t have it together” in ways that it is truly hard for the government to fix, but the notion is “where would we be” with respect to civic disorder if large numbers of people were left in desperate circumstances. So it is an appeasement, it is a bribe that your neighbors leave you unmolested.

      As to the Libertarian ideal of private garbage collection, don’t know, I think I rather deal with the Streets Division of the People’s Republic rather than Waste Management, Inc..

      Conservative me lives in the DSPRMW (Democratic Socialist People’s Republic of Madison Wisconsin) whereas a considerable more Liberal relative lives in a gated community in South Florida, with one of those Neighborhood Associations, which was explained to me by none-other than arch Libertarian David Friedman while I was seated on a couch in a basement den in Wilmette, Illinois, long before this more private-enterprise arrangement was a “thing.”

      I have considerable freedom in the People’s Republic to let Norway Maples sprout on my front lawn and grow tall, to not chemically treat the lawn against broadleaf weeds. Neighbors may glower at me, but the DSPRMW lets me do pretty much what I want. My relative living in Florida cannot put in a single cabbage plant without getting Board approval. I call this Libertarian Fascism and the paradox of liberty under Paul Soglin’s rule.

      1. It’s not all or nothing; nor is it only the rich can afford services. Nor does it have to be a free rider problem.

        So let’s consider private police services. Let’s start with none. A community still has laws and most people will mostly follow them, but some bad actors start to move into the community. The rich can afford to hire protection directly. The poor will hire them collectively. That is, they will contribute voluntarily to companies that cover specific regions with a known amount of officers. Of course there would be free riders.

        Is this better or worse than a govt. tax paid service?

        Those private services would depend on providing better services than competing companies. People that want more law and order would donate more making the officers more responsive (and friendlier) to their communities.

        The problem with private services happens when govt. sticks its nose in to ensure monopolies.

        Some will get better service than others, but that’s regulated by consumers. Suppose a nice neighborhood borders a bad one. Assume most of the crime comes from the bad taking from the good. Wouldn’t the good demand better services that would bleed into the bad? Wouldn’t they have to donate more or change providers to get it? It’s totally self regulating with no govt. involvement… as long as the barriers to competition are kept low as possible.

        Let’s talk more about the bad neighborhood that doesn’t have a good one nearby. Does it just become totally lawless? No it wouldn’t. People would either move out or self organize.

        Is that fair? No more or less than life itself.

        I gotta tell ya. I’m not very impressed with the quality of tax paid services that I have experienced.

        1. As I told you, it was 46 years ago that I was sitting on a couch in the basement in Wilmette of an industrialist and major Conservative political donor, with David Friedman as in Milton Friedman’s son standing right in front of me.

          It is like William Windom’s famous line in the Star Trek episode The Doomsday Machine, where he is challenged with “There is no third planet.” He replies sobbing, “Don’t you think I know that!”

          I also have an inkling of how such a thing works in real life. It is where a relative lives in a “gated community” where the homeowners pay for a private security guard to check who comes and goes. That part is fine. OK, that part is not fine. He is a liberal who cowers behind a private gate and I am the Trump-supporting Fascist who mingles with public housing recipients at Woodman’s Foods or at Walmart. If your community is so far gone that the near rich have to put up a gate to separate themselves from the poor, I don’t want to live that way.

          The part that would have me going nuts is the part I don’t think David Friedman could anticipate. It is Neighborhood Association Fascism. Said family member wanted to repaint the outside walls, and there was a Neighborhood Association sanctioned set of colors you could choose from — he jokingly called it 50 Shades of Beige.

          All of this is voluntary, all of this is people willingly and freely entering into contracts to get the whole nine yards of the private guard operating the checkpoint with the restricted color schemes with the permission-that-you-won’t-get to plant a vegetable garden or plant a fruit tree.

          Government isn’t all bad when it can protect liberty, when it can protect property, and when it can protect human life. I don’t think that contractual relationships among consenting adults can do all of that. They fall into the traps that the Founders were trying to avoid with limits on powers and Constitutional government. I am the first to admit that the Constitution has been stretched beyond recognition. But what we have left of it is better than the chaos of a Constitutional Convention in this particular age or signing ones freedom away to Neighborhood Association control freaks.

        2. With proper rule of law free citizens can arm up to protect themselves. And yes that includes vigilantes. As long as the vigilantes operate according to the restrictions we’d expect on police I don’t see a problem with that.

  4. No one seems to consider the possibility that Congress can do this again. Everyone is all focused on actuarial estimates of what will be ten years out. But if the new tax code turns out to be pretty popular – and it probably will, as most people save money – and the Republican Congress remains intact, there’s no reason they can’t revisit this next year or the year after and simplify it further.
    With some good luck, we could do this eight times. We could keep whittling down regulatory agencies eight times. We could cut spending for them (seven?) times. Etc. Build seven Walls :).
    There’s a lot of low-hanging fruit, if you remember that your goal is to keep the median voter in Pennsylvania happy.

    1. Since it includes expirations I think it’s certain to be revisited and more popular next time with some dems (for their own survival) voting for.

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