Want Jobs? Abolish Corporate Income Tax, Says New York Times Op-Ed

Tax cuts and jobsprocon.orgBoston University economist Laurence Kotlikoff has a terrific op-ed today in the New York Times cogently arguing that abolishing the corporate income tax is the equivalent of unleashing a jobs creation machine. Kotlikoff accurately notes that capital goes to where it's wanted and low taxes are a great signal that it's welcome. Kotlikoff and his colleagues have developed a econometric model to see what effect various corporate tax rates have on job creation and wages. Kotlikoff reports:

In the model, eliminating the United States’ corporate income tax produces rapid and dramatic increases in American investment, output and real wages, making the tax cut self-financing to a significant extent. Somewhat smaller gains arise from revenue-neutral corporate tax base broadening, specifically cutting the corporate tax rate to 9 percent and eliminating all corporate tax loopholes. Both policies generate welfare gains for all generations in the United States, but particularly for young and future workers. Moreover, all Americans can benefit, though by less, if foreign countries also cut their corporate tax rates.

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).

Before the 2012 election, even President Obama said that he wanted to cut corporate income taxes from 35 percent to 28 percent.

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  • wareagle||

    Kotlikoff isn't aware whom New York elected as mayor, is he?

  • datcv||

    Well just scroll down to the commenters and all the "Times Picks" are the derpy progressives that didn't understand what they just read.

    "Well it can't be true because corporate taxes paid have been falling since the 60s and so have real incomes!!!!1 DERRRP!!"

    Yeah that was his whole fucking point -- corporations are fleeing overseas and paying less in taxes BECAUSE THE FUCKING TAX RATES ARE TOO HIGH and it has been hurting the REAL INCOMES OF WORKERS.

  • ||

    TerriKyNYT Pick
    And it would be wonderful if those increased dollars would go towards better wages and benefits for workers. However, we all know that will not happen. It will go towards bigger salaries and bonuses for executives, as has been happening for the last decade or so.
    Jan. 6, 2014 at 5:01 a.m.RECOMMENDED696

    Lots of CITIZENS UNITED too. I am Jack's inflamed spleen.

  • SusanM||

    Also from the comments:

    "I am not an economist, but I am a business owner. I think the economists over-look the natural behaviorism of business owners. If I need to pay little in taxes on all my earnings, I will inflate earnings as much as possible and take the money and run. If, however, taxes are high on both corporate and personal earnings, I will avoid high profits and will be more likely to invest in my business and pay year-end bonuses to minimize my tax load and maximize my business's value. The de-facto taxes on corporations, high earners and the rich in America are so low that they are incentivized to take the money and run. Unfortunately, or fortunately, my business is in Germany where both de-facto personal and corporate tax rates fosters a mentality of, "Spend it here in my business or on my people or give it to the tax office."

    Jan. 6, 2014 at 6:22 a.m.
    Recommended81"

  • JW||

    If I need to pay little in taxes on all my earnings, I will inflate earnings as much as possible and take the money and run.

    This is:

    A) A bald faced lie
    B) A very poor business owner
    C) Bill De Lasio

  • UnCivilServant||

    If I don't have to pay taxes on my earnings, I try to keep them coming as long as possible.

  • robc||

    Exactly. And what does take the money and run mean exactly?

    Make enough earnings to retire then sell the successful business to someone else?

  • Francisco d Anconia||

    No, you'll run your business into the ground, taking all the profits and leaving your worker's children to die in the streets.

  • Francisco d Anconia||

    Because you'll make more in profits than you would in selling a successful company.

    Bastard!

  • robc||

    What profits?

    If you run your business into the ground, there are no profits.

    Or are you saying that after earning enough profits, I would intentionally run the business into the ground for funsies?

    Because, you know, that isnt entirely unpossible.

  • Francisco d Anconia||

    That's the way it works. You make profits by destroying the company, cash in and then float down in your golden parachute, leaving the workers to die.

  • SugarFree||

    It makes a twisted sort of sense if you are stupid enough to think the sole purpose of a business is to provide jobs rather than profits to the owners.

    See, high taxes means more jobs because derp.

  • Hyperion||

    That's what all the evil minions of the Kochtopus do, don't you know. They make a bunch of money and sew it up in the mattress in their one bedroom apartment in the hood. They do that just to keep the poor children from getting the money.

    Everyone who has ever owned a business knows this. And the only way to prevent it is more taxes, which magically turns Kochtopus minions into saints who give away all their money to poor orphans.

  • Mercutio||

    No, no, no! They put all of their money in a big vault and go swimming in it, like Scrooge McDuck!

  • JEP||

    Didn't Hazlitt reduce all economic fallacies to one of two things: the broken window fallacy or being too short/far sighted?

    This would definitely fall under being short sighted.

    If I don't want to financially cripple my company, I have incentive in the world to re-invest in it. You know, so it will yield profit for my entire life instead of having "take the money and run."

  • JW||

    Isn't it about time that we're reminded by some lefty scumbag, that the only far-sighted people on the planet are the politicians?

  • Andrew S.||

    It's indicative of the left-wing point of view.

    You know how there are religious people who seem to think that religion is the only check on morality, and without that, they'd be immoral people? It's the same with liberals when it comes to economics. They're greedy assholes, and they think that everyone else is a greedy asshole, and that only by mother government can everyone be stopped from being a greedy asshole.

  • ||

    So...projection once again?

  • SugarFree||

    With some profound ignorance thrown in. They can only think this way because they haven't a clue on what owning a business is even about.

  • Mercutio||

    So...projection once again?

    Projection now, projection tomorrow, projection forever!

  • ||

    Wow. The stupid....it burns. First off, what does take the money and run means? So they earn a profit and then close up shop and run away? Secondly, most good business men and women use whatever money they have to expand or even create a better product. And the more capital they have the more they will expand which thus means more people they need to hire.

  • JW||

    Unfortunately, or fortunately, my business is in Germany where both de-facto personal and corporate tax rates fosters a mentality of, "Spend it here in my business or on my people or give it to the tax office."

    BTW, this sounds very familiar, reminiscent of a short-lived lefty troll here last year or the year before.

  • Raston Bot||

    Funny, I expect Germany's tax rates to foster a mentality of "fuck you, I'm out of here."

  • Hyperion||

    Anyone who believes a word of that bullshit, is stupid, period.

  • Raston Bot||

    It will go towards bigger salaries and bonuses for executives

    '...and get taxed as regular income' the commenter forgot to add.

  • kbolino||

    Then they'll just scream that they're paid in stock rather than cash.

    Never mind that the value of stock is tied to the value of the company, so creates an incentive for the person holding it to maximize its value. Or that the sale of stock is subject to capital gains taxes (provided gains were made).

  • ||

    Yeah, that's a total non-starter. When you have one of the TEAMs hating corporations as much as they do, you are going to hit a brick wall trying to implement any policy that can be spun as "corporations paying less taxes".

  • Killaz||

    Why are you against freeing the masses from corporate wage slavery, Episiarch?

  • Doctor Whom||

    Since taking less is giving, we'd be subsidizing those evil, evil corporations.

  • Rasilio||

    You probably could, but you'd have to drop the revenue neutral assumption and add a new tax to "replace" the lost revenues that specifically targeted "the Rich"

    So if you for example instituted a financial transaction tax on Stock and commodity transactions you could sell it as "Corporations are just collecting the tax from their workers and customers so we are switching the tax to the business owners by taxing their non productive financial transactions"

  • Dr. Frankenstien||

    That would be the way to sell it. Tell the proggies that the people in charge of the corporate structure don't pay the corporate income tax. Then, treat capital gains and dividends on people making more than $500,000.00 as normal income or at least raise the tax on that to offset revenue decreases if there are any.

  • robc||

    If there is no corporate income tax, then you can legitimately raise all cap gains and dividends to normal income rates, as there isnt double taxation any more.

  • Brett L||

    well, dividends yes. Capital gains are thornier. What does this have to do with the increase in value of any real estate or other physical asset I hold for more than 18 months? But I think it would drastically alter the cash accumulation versus dividend calculus investors currently prefer.

  • Dr. Frankenstien||

    robc, intellectually you're right but practically, you have too many retirees and people who would be pushed to a higher tax bracket if you treated all dividends and capital gains as normal income at the lower levels. It would be even more politically a non-starter than it already is.

  • robc||

    Those retirees would be paying LESS tax than they are now, it just wouldnt be hidden. Their dividends after-tax would be higher than today.

  • robc||

    Agreed on increase in physical assets, I was thinking of cash accumulation.

    But I think both would need to be treated as regular income in order not to alter that calculus to much. I think its already a bad thing that companies have mostly gone away from dividends.

  • datcv||

    He isn't hating. He is saying that the TEAM (aka Liberals) hate corporations so much (CORPORATIONS ARENT PEOPLE DERP LETS TAX THEM LIKE THEY ARE PEOPLE!!!!) that eliminating the corporate income tax, no matter how good of policy it is, will never come to pass.

  • sarcasmic||

    Cutting taxes will give corporations more money with which to invest, but without regulatory reform why should they bother?

  • Floridian||

    Well I cut all taxes in simcity to zero and my city burned to the ground, so think about that Mr Kotlikoff!
    /basement prog

  • Tim||

    TAX CUTS FOR THE RICH!

  • CampingInYourPark||

    Just finished watching the Senate Banking Committee hearing on the Yellen nomination. The only appropriate reaction to the suggestion of lower corporate taxes considering what I just saw is:

    BWAHAHAHAHAHAHAHA!

  • ||

    What, did Bezos buy the NYT too?

  • Brett L||

    Wasn't there a rumor that NYT was for sale? Maybe this is their version of sweeps week. Publishing actual news to pretty up the old Gray Lady and make her look a little less out of date and irrelevant.

  • Killaz||

    Even his kidney's hate him! /i shot the derpity, didn't get the mission bonus

  • Steve G||

    Then who's going to pay their fair share?!?!

  • JW||

    We all took a vote, Steve. You are.

  • Steve G||

    damn

  • Francisco d Anconia||

    This will do nothing but increase the profits of evil, greedy businessmen.

    If you want to help the po, you need to tax the evil, greedy businessmen more and give the proceeds to the real wealth creators... the workers.

  • Restoras||

    After first giving it to bureaucrats and politicians becasue only they are smart enough to do stuff.

  • kbolino||

    The greatest con ever run. Let's take a dollar from the business and give a dime to the worker. If you dare question the arrangement and point out that the worker would get more money if the government wasn't involved, it's because you're greedy.

  • BigT||

    If you want to help the po, you need to tax the evil, greedy businessmen more and give the proceeds to the real wealth creators... the unemployed.

    FIFY

  • The Rt. Hon. Serious Man, Visc||

    That this drives the average New York Times reader insane is an added bonus.

  • Restoras||

    The average NYT reader won't read it - the cognitive dissonance would create head explosions all over the UES and UWS.

    Maybe I'll see a few on the train ride home tonight.

  • datcv||

    They are nodding firmly in agreement with all of the Times picked comments.

  • JEP||

    My dad told me at a very early age that individuals pay all taxes. Taxing businesses has never made much sense to me.

    If a business is trying to get off the ground it's going to need every bit of profit it can get, so if taxes are raised it has to raise it's prices (pass on the tax to the consumer).

    If a business is well established, then the higher taxes will limit its ability retain good employees, higher new ones, and expand the business.

    The only kind of business that higher taxes will affect in the desired way are monopolies and cartels. So the higher tax squashes start up businesses, limits medium size businesses, and the tax just becomes the fee that monopolies pay to the government to exist in the first place.

    If taxing cigarettes discourages consumption, what does taxing business do?

    That's really how this idea should be sold. If government wants to encourage job growth, repeal the payroll tax.

  • Doctor Whom||

    If taxing cigarettes discourages consumption, what does taxing business do?

    That's different because the intent of taxing cigarettes is to discourage consumption. Intent is magic.

  • creech||

    I can see the construction unions getting behind something like this.
    Imagine the jobs created when all manner of non-U.S. companies want to build factories and offices here and "ship jobs to the U.S." in order to avoid taxation.

  • The Late P Brooks||

    In the model, eliminating the United States’ corporate income tax produces rapid and dramatic increases in American investment, output and real wages

    I want to believe.

    My faith in econometric models is extremely limited, however. No matter what, a good idea is a good idea.

  • kbolino||

    Fear not, by the time the bill made it out of Congress, there would be so many new regulations and other crap attached that whatever positive effect it had would be cancelled out several times over.

  • Killaz||

    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.

    It's a funny culture we live in. To accurately describe the mainstream belief in wealth redistribution and positive rights as socialist is considered derogatory, but 'trickle down' and 'voodoo economics (thank you ever so much ex-president Status Quo Plus) is well within the bounds of respectable debate.

  • Libertarius||

    If "voodoo economics" has any actual, objective meaning, it would be the crudely obvious voodoo of pretending that consumption comes before production, and that the mystical power of sitting on your ass "demanding" something is what makes the world go round.

    "Demand-side" economics are an academic witch doctor's attempt to reverse cause and effect.

  • Killaz||

    That concisely nails the problem at the heart of modern theory and policy.

  • JW||

    but 'trickle down' and 'voodoo economics (thank you ever so much ex-president Status Quo Plus) is well within the bounds of respectable debate.

    How do you think Amazon got to be so big? They kept all the money to themselves and didn't invest it at all. And, they constantly raised their prices the entire time.

    That's right, you have the same 10 guys from Day One running around the warehouse fulfilling orders, while Bezos jets off the Whore Galapagos Islands and buys newspapers.

  • The Original Jason||

    One would think that invoke "animal spirits" is "voodoo economics'...

  • GILMORE||

    First an article which DOESNT recite the tired old scare-stories regarding GMO... Then, in the same day?? they Kolitkoff write an Op Ed suggesting (gasp) taxes should be lowered? WTF?

    Do they do this for like one day a year, so that the rest of the year they can resume their monotonous combination DNC propaganda campaign/ego-stroking of upper west side liberals - and then still claim they're "Unbiased"?

    The commenters seem confused about this "moar jobs" thing; they keep insisting the real issue is "more profits for workers". They don't care about the broader 'growth' thing if they can't see proof that this growth thing results in any redistribution of wealth downward.

    I think that, just as "Environmentalists" whip out their NIMBY-credentials whenever a policy potentially conflicts with their personal habitat demands, NYT readers really don't care about 'benefits for the ECONOMY' so much as, "Does this policy allow for people to fuck over management and take home more cheese for less work?"

    i.e. the French system.

    They are fundamentally disinterested in positive Economic benefits = the core issues are a) does this policy Fuck the Rich? and b) does it give our Crony political regulators more Power?

  • robc||

    It would be difficult* to do, but I like the idea of making C-corps pass-thru entities. At that point, you can also make capital gains and dividends regular income and not a special discounted rate, as double taxation wouldnt exist.

    *possibly so difficult that it couldnt be done

  • The Late P Brooks||

    Lots of CITIZENS UNITED too.

    Speaking of people who do not believe in the First Amendment, Brian Schweitzer's mug seems to be turning up a lot, lately.

  • ||

    Unbelievable. Not once does Kotlikoff mention that there would likely be ZERO net change in revenues with the elimination of the Corporate tax due to existing Individual Income taxes. NOT ... FUCKING ... ONCE.

    Unbelievable.

    Look, there is absolutely no reason, from a revenue perspective, to have a Corporate Income tax. NONE. The ONLY reason to do it is to give the IRS a clear excuse to be a corporate auditor and authorize certain expenditures as "expenses" and not "personal income". And in the end, you don't need a Corporate Income tax to do that.

    The Corporate Income tax is the stupidest tax we have. It is complete ignorant of economics and how other existing taxes would accomplish the identical task. To fail to even comment on the pass through effects of corporate income on personal income shows that Kotlikoff has no business calling himself an educator.

  • The Late P Brooks||

    Meanwhile, in the real world, there is a lot of boo-hooing about a bunch of targeted tax breaks which expired on the 31st.

    Tax rationalization is going nowhere.

  • Fluffy||

    One aim of US corporate and individual tax policy is to make it more difficult to accumulate capital through earnings.

    Our tax policy actively encourages capital formation via the regulated capital markets (debt and equity). One might conclude that this is to enhance the power of the firms that dominate those markets and the regulators who control those markets, but that would be paranoid.

    If they got rid of corporate income taxes, LLC's would disappear and small business owners would park all their income in the tax-free shell. This would enable them to both avoid tax and rapidly accumulate capital, and that in turn would allow them to more effectively compete with large firms. There is NO Washington DC constituency that favors ANY of those things.

  • robc||

    See my post above about turning C-Corps into pass-thru entities.

    But, you are right, the S Corp and LLC would go away if there was no corporate income tax.

    Your last paragraph is WHY it would be an awesome idea, and also who opposes it.

  • Andrew S.||

    The LLC would still have its place as a preferred management structure (if it didn't today, it wouldn't exist, since people would just opt for S-corps instead). S-Corps would obviously be gone though.

  • robc||

    Also, notice its the left supporting big business interests. Yet again. While claiming to hate corporations.

  • ||

    small business owners would park all their income in the tax-free shell

    No they wouldn't. They still need that income for things outside of the business. For things inside of the business, those reinvestments are still likely depreciable expenses. I don't think the incentives hoard cash are anywhere near what you make them out to be.

  • Fluffy||

    Once upon a time I owned a small business that generated large profits.

    Because we were young and stupid, we had set the business up as a C-Corp.

    That led to frantic scrambling to pay out as much money as possible to the owners, so it wouldn't be taxed twice. After that tax year, we reorganized as an S-corp.

    We then could not accumulate money in the business because if we didn't move it out, we would have personal tax liability and no cash to pay it with.

    Whether using traditional structures or pass-thru structures, the existing tax system fucks you if what you really want to do is pay yourself nothing and grow. You either get to get double-taxed when the day finally comes that you DO move profits out of the C corp, or get taxed personally on money you haven't paid yourself.

    The only way to have the ability to accumulate capital through earnings is to make possible a shell that can accumulate that capital without being subject to tax. Without that, the incentives all fuck you over and keep you small.

  • ||

    if what you really want to do is pay yourself nothing and grow

    That's a big IF. And I totally agree that if that's what you want to do, you can't. And that's thus a huge anchor on our economy's ability grow.

    BUT...my point really was that unless you are trying to accumulate cash specifically to grow your business (and thus growing the economy), there's no other reason to be hording it. Thus you can't say that the mere existence of the shell is going to lead to cash hording outside of the accumulation necessary for capital improvement/expansion.

  • robc||

    See below, there is another reason to "hoard" it. To grow it via tax-deferred investments.

  • robc||

    And following up on this...every individual would want to set up a c-corp to contain their long term investments.

    Basically, unlimited IRA with no age restrictions on disbursement.

  • robc||

    Fluffy is right, just not for the reasons he said.

    In a c-corp with non corporate tax scenario, I would, as owner, take out only what I "needed" for my life. Savings and etc would all be done inside the corporate structure tax free, even if in cash form. All "excess" profits would be invested in what would effectively be an IRA/401k, without the restrictions. No taxes until I removed the money.

    I dont consider this a bad thing.

  • robc||

    Not *just* for the reasons he said.

    His reasons are 100% right, just not the only ones.

    I wrote that poorly initially.

  • ||

    Neither do I. And that also underscores what I said earlier...eventually, the money will be removed and taxed under Personal Income rules, and thus the net tax effect is very similar.

  • robc||

    Actually, with a family business you could pass the savings down to future generations, so it could theoretically never get taxed.

    But I guess the death tax would come into play with the value of the stock being inherited.

    With this structure in place, I guess I wouldnt oppose the inheritance tax on untaxed gains.

  • robc||

    SLDs above, as I would oppose the tax for existing at all, but you know what I mean.

  • JEP||

    I'm still confused about why the government needs to collect taxes at all when revenue doesn't matter and spending is unlimited.

  • The Late P Brooks||

    If I need to pay little in taxes on all my earnings, I will inflate earnings as much as possible and take the money and run.

    Fucking return on invstment- how does it work?

  • NoVAHockey||

    you return your investment to the government, which makes all things possible.

  • Raston Bot||

    Fully eliminating the corporate income tax and replacing any loss in revenues with somewhat higher personal income tax rates

    Why did he feel the need to stuff that in there?

  • JW||

    ZERO SUM GAME!!!! Businesses always take the money and run. They *never* compete on price or value.

  • lap83||

    Corporations are greedily hoarding all the jobs in the form of their profits. That's why we need government to step in and transform the profits into jobs using the powers of compassion and social justice.

  • Alice Bowie||

    We should do three things:

    - Eliminate Corporate Income Tax
    - Make all owner draws (dividend, bonus, income, etc) from a company Earned Income and eliminate the concept of capital gains
    - Work on eliminating Employer sponsored healthcare and pension

  • waffles||

    I see you've changed a bit Alice. Do you even still want to keep dope alive? Eliminating employer sponsored healthcare is a tough nut, but removing pensions has already happened everywhere except the public sector. Why do you think that is?

  • Alice Bowie||

    I would want to replace both with something that is not libertarin-ish.

    I'd prefer we enhance Social Security so that it and FICA is collected along with Income Tax.

    Also, heathcare should be like Medicare for All (and Emergency or Major Medical Plan) that is also collected along with Income Tax. This Medicare won't cover every single visit, but it would work for emergencies and Major Stuff.

    If you can open up a a lemonaide stand and only have to worry about minimum wage, that would work for me.

  • kbolino||

    Is lemonade stand worker a tipped or non-tipped position? Does it count as agriculture or retail? Can a lemonade stand employ salaried workers or does it have to pay hourly? What constitutes overtime? What about workers who are laid off by the lemonade stand?

    But never fear, you "only" have to worry about minimum wage.

  • T||

    I thought only government could create jobs. How would cutting taxes enable the government to have the resources to create jobs?

  • Raston Bot||

    I will inflate earnings as much as possible and take the money and run.

    This is so stupid it deserves a viral meme.

  • BigT||

    That's what Apple did. As soon as they made their first million they sold out and retired to Tahiti.

    Oh wait....

  • Libertarius||

    I would scrap the entire income tax system (what a fucking self-made nightmare) and replace it with the FairTax.

    The state derives a great deal of its arbitrary, non-objective power from the legal swamp surrounding the income tax system. I'd like to see libertarians make a much bigger effort towards eliminating the income tax; everybody knows where we stand on pot.

  • Alice Bowie||

    A FairTax would be a flat rate Income Tax on all Income with no distinction and rate differences for rich/poor.

  • kbolino||

    Most "FairTax" schemes I've seen provide a single deduction or rebate to cover living expenses. Then you are only taxed on your "excess" income.

  • Libertarius||

    I mean *the* FairTax, the proposed legislation which repeals the 16th amendment, abolishes the income tax completely, and replaces it with a consumption tax.

    Tax income, and you get less employment. Tax consumption, and consumers decide what taxes they are going to pay through their own purchase decisions. I can't believe Reason isn't going full-bore for the FairTax, it is the singlemost libertarian way of funding the federal government.

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