Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

Abolishing the corporate income tax gains steam

Jerry Stratton, July 25, 2014

Abolishing the invisible tax called the corporate income tax has surprisingly gained new supporters since I wrote No corporation pays taxes. Megan McArdle wrote on Bloomberg View that:

The problem with this extended chess game is that every move is very costly. First, it adds to the complexity of the tax code. With every new rule—no matter how earnestly said rule attempts to close a “loophole”—it becomes harder to know whether you are in compliance with the law. This is true on both sides; corporate tax law has now passed well beyond the point where it is possible for a single expert to be familiar with its ins and outs. This makes it harder to plan business expansions, harder to forecast government revenue, and it requires both sides to hire more experts in order to determine whether corporations are compliant. It also means more lawsuits, and longer ones, as both sides wrangle over how this morass of laws should be applied to real-world situations.

The corporate income tax makes it harder to create new businesses because you can’t just become great at making your new widget; you have to become great at understanding and influencing Washington, DC. Which means that many people who would otherwise create thriving new markets with new jobs don’t.

John Steele Gordon at Commentary adds to this, noting:

Megan points out that abolishing the corporate income tax would bring howls of protest from the left that corporations aren’t paying “their fair share.” But corporations, of course, don’t pay the corporate income tax. Instead it’s paid by some combination of workers, with lower wages; customers, with higher prices; and shareholders, with lower profits. The particular combination depends on the economic circumstances of each industry. And abolishing the corporate income tax (which was, anyway, only intended to be a stopgap until a personal income tax amendment could be ratified) would have many extremely positive effects for the American economy.

He goes on to list several benefits of ending the invisible income tax and invisible sales tax that we call the corporate income tax.

And in January, economist Lawrence Kotlikoff wrote in the New York Times that:

The size of the potential economic and welfare gains are stunningly large and don’t reflect any extreme supply-side (a k a, voodoo economics) assumptions. Fully eliminating the corporate income tax and replacing any loss in revenues with somewhat higher personal income tax rates leads to a huge short-run inflow of capital, raising the United States’ capital stock (machines and buildings) by 23 percent, output by 8 percent and the real wages of unskilled and skilled workers by 12 percent. Lowering the corporate rate tax to 9 percent while also closing loopholes is roughly revenue neutral and also produces very rapid increases in capital (by 17 percent), output (by 6 percent) and real wages (by 8 percent).

In other words, jobs go up, wages go up, and prices go down.

The problem with ending this tax is two fold: one is that the corporate income tax is a huge boon for tax lawyers, and lawyers make Washington. Two, however, is that Washington itself loves invisible taxes and it loves taking bribes. It loves to be able to increase revenue by increasing prices on the things we buy, and then turn around and blame big business for raising prices on the things we buy. And it loves to be able to set different industries and different companies against each other, extorting greater and greater campaign donations from companies and industries all hoping that their donations will convince Washington to increase taxes on their competitors instead.

Politicians don’t like simplicity and sunlight, because with simplicity and sunlight comes responsibility. Voters can see what’s going on, and they can understand what they see—and realize that increased taxes means less money for them.

In response to No corporation pays taxes: Corporations don’t pay taxes. Their employees do, and their customers do. Every dollar that a company has to pay in taxes, that company must pass on to either their employees or their customers, if the company wants to stay in business.

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