Economics

Stimulating the Economy by Repealing the Corporate Income Tax

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Writing in National Review, Harvard economist (and Reason contributor) Jeffrey Miron makes the case for repealing the corporate income tax:

Rather than attempt to target jobs in the short run, the administration should advance policies that make sense independent of the recession and that enhance economic efficiency over the long haul. One such policy is to repeal the corporate-income tax, which will stimulate employment far better than a jobs tax credit.

If corporations face zero taxation on their profits, they will expand investment and employment for two reasons. First, the increased cash flow will allow corporations to invest without borrowing from banks. These new investments will generate employment both to build new plants and equipment and to staff the new factories. This is the standard Keynesian argument for business-tax cuts, and it can operate almost instantly. Second, repeal of the corporate-income tax means a higher return to investment, which encourages capital accumulation in the long run.

Read the rest here.

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  1. Sounds like the FairTax would have an even greater impact than just repealing the corporate income tax.

    1. The Fair Tax requires several things:

      1) A Constitutional amendment to make it legal. This isn’t going to happen because you won’t convince enough people that this wouldn’t either:
      a) unfairly target the poor
      b) result in yet another huge and intrusive bureaucracy
      c) result in a black market of untaxed goods (just like every single excise tax in history has done)

      2) A Constitutional amendment to abolish the income tax (because make no mistake, if we get #1 and not #2, we’ll be stuck with both a much heavier tax burden).

      So yeah, good luck with that one.

      1. It takes 2/3 of states to ratify a constitutional amendment (correct?) And seeing that many are introducing FairTax laws at the state levels, 2/3 is entirely possible. With enough political pressure from pro-freedom groups states are more likely to see the light. Afterall, the government passed the 16th amendment in the first place, it certainly can repeal it.

        The Prebate eliminates the argument that it is regressive. Its an easy argument to win if you get the information out there. Its a matter of public education. That won’t happen next year, but over a decade, strides can be made to overcome this.

        I don’t see a majority of people searching out for a black market for items at the retail level. The retail level is the only taxable level of the FairTax. Certainly a bureaucracy created (or more likely a retooling of the IRS duties) to hold buisness accountable to the comsumption tax is not unreasonable.

        I agree that the fairTax won’t work without the repeal of the 16th amendment. I write with a beer in front of me proving that it is possible.

      2. 1) A Constitutional amendment to make it legal. This isn’t going to happen because you won’t convince enough people that this wouldn’t either:
        a) unfairly target the poor

        Sell it as a “green” “consumption tax”….it’s good for the environment, because it encourages people to consume less!

        That’ll make progressives’ heads spin….

  2. I’ve been calling for an immediate repeal of the corporate income tax since this recession began. Nice to see professional economists finally catching up to some of the amateurs.

  3. The most destructive tax is the deficit. Unless we cut spending, changes to the tax code are just rearranging the deck chairs.

  4. I own a small corporation.

    If you you repeal the corporate tax, I’ll be very very happy because my profit will GO UP…and, I intend on KEEPING THE MONEY. I’m not hiring anyone nor am I going to invest any further in my business, the stock market, or this country.

    If you repeal the corporate taxes, big corporations will create more new jobs…in India/Mexico/Asia/etc. They will simply keep the extra money and pay themselves higher bonuses and salaries.

    It is silly to think that corporations will not just simply take the profits for themselves and their own interests.

    1. Exactly – reducing the tax rate decreases the incentive for corporations to spend money on salaries or other tax-deductible expenses, and increases the incentive for them to just let the cash flow to the bottom line.

      For every dollar reduction of corporate tax revenue, you’re increasing the deficit by $1, but only making a portion of that dollar available to a company to hire a new worker. A tax credit, on the other hand, makes a dollar available for new hiring for every dollar increase in the deficit.

      If employment is the goal, this is a bad way for the gov’t to spend money.

    2. And then they’ll either invest it or buy shit. Because corporation owners don’t tend to bury their cash under their bed… unless their last name is McDuck.

    3. Why would they go overseas when there taxes are cut here?

      This is the kind of BS that stands in the way of tax reform.

      BTW, making money IS their interest.

    4. If you you repeal the corporate tax, I’ll be very very happy because my profit will GO UP…and, I intend on KEEPING THE MONEY.

      Do you plan on spending it? Because that helps the economy.

      About the only thing you can do your new earnings wouldn’t help the economy with your increased income would be to burn it in your backyard.

      1. This would not surprise me.

    5. You don’t invest in your own business with your profits?

      Maybe you’re just a shitty businessman.

    6. “I own a small corporation.”

      No you don’t.

      1. Troll FTW

        1. I’m not trolling. I’m calling this dude’s BS.

      2. Actually, I’ve been incorporated since 1992.

    7. This may be too obvious but I’ll point it out anyway,

      Businesses, including corporations, do not pay taxes. Individuals pay taxes. Businesses and corporations collect taxes.

    8. I look forward to your competitors raping you silly as they outcompete you.

  5. Want true stimulation? Cut all income taxes for a year. And, yes, reduce spending dramatically. Even if we went back to the status quo, it would have a remarkable effect on the economy. Of course, given our paranoia about what this government wants to do to us, we might just bury the money in the cold, cold ground.

    1. And, yes, reduce spending dramatically.

      The liberals would want to stop spending money on WAR.

      The conservatives would want to stop spending money on PEOPLE.

      1. And libertarians want both.

        What I tell liberals who accuse me of being cold-hearted is that the first thing I would do (as emperor, I guess, and after ending the WoD) is end all transfers of wealth to profit making entities. They generally agree, until it hits them that this includes loans & grants to small businesses run by minorities, small farms, etc.

        1. And libertarians want both.

          If u take under consideration the ‘butter/guns’ thing, someone has to pay.

      2. Then why don’t the liberals stop spending on money on WAR? They control the CONGRESS now, DON’T THEY?

        Also, in answer to your previous comment, why do you assume the government can spend your money more efficiently than you? If they can, why don’t you pay more taxes than the minimum required by law? Why even keep your profits?

        1. Heck, you only have to control 1 house of congress to stop spending on item X.

          1. Who in congress, either house, wants to stop spending money? Both parties think that IS their job. You know, to bring federal tax dollars back to their state.

        2. Liberals do NOT control congress. We have at least 10 democratic senators that might as well be republican. Joe Liberman is no liberal. And, there are ABSOLUTELY NO LIBERAL republicans.

          1. Yes, there are liberal Republicans. It’s just that they’re sticking to the party line until 2010.

          2. Those are just democrats in name only. 😉

          3. Liberal senators could filibuster the war spending bills, if they wanted…

            Hell, the House could simply refuse to pass any such bill.

            And yet, they don’t….hmm…..

      3. Also, Alice, my apologies for a previous post where I was insulting to you. I usually try not to insult people, except to obvious trolls, which (whatever my disagreements with you) you are not.

      4. I just know that we will end up keeping halliburton, war, and all other conservatives interests and the so called ‘special interest like public entitlements would cease’.

      5. The liberals would want to stop spending money on WAR.

        Sure they would.

        AP: Obama wants $33 billion more for war

        1. Obama is NO LIBERAL

          1. Few politicians actually have any motivation other than greed and narcissism. Ideology (like religion for theocrats) is just a tool that they use to maintain power.

            It’s sort of the fatal flaw in representative democracy.

          2. You are right…he is a socialist at least.

    2. I always thought that cutting individual income taxes would have an immediate and very positive effect. More people would be able to afford their mortgages, and there’d be enough to pay down debt AND spend on goods/services. Plus, there’d be the added side effect of everyone realizing how much money is taken out of their paycheck, and getting really pissed when the income tax is reinstated.

      I liken it to millions of taxpayers getting a 30% raise.

    3. As I recall, last years tax receipts would pay for the 2002 budget. That would be my plan as a candidate. Freeze taxes at their current rates for a year, cut the budget to 2002 levels (I wanna hear the squawking about how America was a desolate wasteland, ravaged by zombies, in 2002 because the budget wasn’t big enough).

      There. Now that we’ve balanced the budget for next year, lets take a look at that tax code.

      1. It was a desolate wasteland? AT GROUND ZERO!

  6. I am a PEOPLE who would like to stop spending money on WAR. I would also like to see spending in the form of dumbass nearly trillion dollar spending stimulus packages that do nothing except give money back to construction companies and their unions who donated to the Democratic Party.

    “People” don’t always fit into ideological boxes because not everyone gets the political philosophy value meal. You can go ala carte as well.

    1. I would also like to see spending in the form of dumbass nearly trillion dollar spending stimulus packages that do nothing except give money back to construction companies and their unions who donated to the Democratic Party.

      We have a newsletter you might be interested in subscribing to. We won’t put your name on any fundraising lists. Honest.

  7. I would also like to NOT see spending in the form of dumbass nearly trillion dollar spending stimulus packages.

    Geez I got to work on this a little. One word blows the whole post. Oof

  8. reducing the tax rate decreases the incentive for corporations to spend money on salaries or other tax-deductible expenses, and increases the incentive for them to just let the cash flow to the bottom line.

    Oh horror!

  9. My point is that eliminating the Corporate Income Taxes and the income taxes on the Rich and increasing the income taxes on the poor/middle class will not have the consequences that the conservatives/libertarians desire.

    Yea, perhaps rich people will hire more domestic servants…but that’s it.

    1. Who said anything about raising it on the middle class?

      this cuts out the middle man (big government). We keep our money and stimulate the economy directly ourselves. Government just gets in the way of a growing economy.

      1. I was just being trollish

  10. The single biggest objection to any proposal like this is that it specifically makes it harder for Congress to dictate business decisions.

    We can’t have that.

  11. Who actually *pays* those corporate taxes? Prices most likely won’t fall in the exact amount of taxes currently passed through to the customer, but the savings will be shared.

    1. Exactly. Corporate taxes are a complete shell game. They are nothing more than overhead to a company. Pass along in the cost of their product.

  12. How about no more corperations….I think it was Adam Smith who actually warned about corperations.

    1. In Adam Smith’s time, each corporation was specifically and individually chartered by an act of Parliament. More like Fannie and Freddie than Apple.

    2. What sort of mom and pop device is letting you browse and comment on the Internet?

  13. Eliminating the CIT also has the ancillary benefits of removing incentives for corporation to make bad business decisions because of benefical tax consequences and also relieving them of the burden of employing battalions of accountants and lawyers to figure out what tax, if any, is owed.

  14. Eliminating the Corporate Tax and Personal Taxes on people who make over $250,000 per year along with eliminating the Payroll taxes and eliminating the minimum wage is what this country deserves.

    1. I sense some sarcasm, but you are onto something. Since these people already pay for them selves and the tax burden of another 10000 Americans, I do think they need a break.

    2. How about we just elemintae all of the deductions and other do-dads of the tax code and just have everyone pay a flat rate?

      No more guesswork on how much income tax you should have withheld, no more 0% interest year-long loans to the guvmint and all of those tax preparers and tax attorneys can all go and get real jobs.

  15. 15% Flat tax. No deductions. No withholding. No quarterly taxes. Tax Day is the Monday before Election Day.

    1. Yes!! no withholding! if people actually knew what comes out of their checks, they may be more inclined on how the gov’t spends their money.

      1. Amen! Witholding is the tool that keeps all the power in the hands of the Federal Government! If it weren’t for witholding, we could’ve put our foot down a long time ago and stopped this monster!

    2. Like we can get a majority to support cutting rates on the rich and raising rates on the poor, dream on. Plus there is still the income verification problem, forms to fill out, deadlines to meet and individual audits. Although difficult to pass, the Fair Tax has a better chance than any kind of flat tax.

      1. The difficulty with the FairTax is getting it passed. Once passed its the most upfront, simple and truly fair system out there.

        1. A truly fair system would require each individual to contribute the same amount towards the cost of government. But the head tax is is the ultimate non-starter.

          1. A head tax would be fair if government protected only life and liberty, and everyone’s lives and liberties were worth the same.

            But, government also protects property, so those with the bulk of the property get the bulk of the benefit of that protection. Granted, that still has little to do with income, but people would like wealth taxes even less.

      2. I am dreaming. Don’t wake me.

    3. I’ll vote for that, SugarFree.

      In fact, if I could make one change to our current situation, that would be it.

  16. Perhaps this is emotion rather than reason speaking, but: if there IS to be an income tax, it does not sit at all well with me to think that some poor schlub working his ass off to make $25,000 a year has to pay taxes on his income, while the corporation raking in millions or even billions does not.

    1. Jennifer, corporations don’t pay taxes, the customers do. Cut corporate taxes and competition will force prices down to the level that keeps them at about the same profitability as before the tax cut.

      1. If corporations don’t pay taxes, thay have no complaint.

        I get what your saying, but they do pay taxes, albeit with the money we give them. By the same standard, I could claim I don’t pay taxes, my employer does because the taxes paid with the money they give me in return for the services I gave them.

    2. Seriously, Jennifer, think of the corporate tax as a sneaky, underhanded, hidden tax on customers.

      Besides, so what if the corporation has billions in profits? It will either:

      (a) pay dividends to real people.

      and/or

      (b) invest in expansion, giving jobs and raises to real people.

  17. Put me down for the flat tax. Actually, I’d go for a (LOW) flat tax/ consumption tax combo.

    1. Consumption taxes are a hell of a lot simpler to collect than income taxes. Retailers are already set up to collect sales taxes. Having to process forms for hundreds of millions of individuals is hundreds of times more costly.

      1. And it should keep the government eyes off your paycheck.

        But if the government can’t get rehab for their spending addiction, a hamburger will be $50

        The tax code could use a major overhaul, but if we can’t reduce government spending it’s just another way of them getting the same amount of money from the citizenry.

        1. I didn’t bother listing my main pet peeve with the income tax. My income, perhaps my most personal piece of data, is none of the government’s damn business.

          I would hope that people will squeel like a stuck pig everytime they pay that 25% sales tax. The death threats should be enough to get politicians to reconsider new spending projects.

          1. I would hope too.

            But people are pretty good a sucking it up and just complaining.

            Along the same lines, I was thinking maybe the pols would reconsider their spending based in the same idea. But then I thought the new currency on capitol hill will be gifts which they didn’t have to pay taxes. Congress people will pay little taxes, but it would raise the cost for the lobbyists.

  18. Jennifer-

    The schlubs who work for the corporation will still pay taxes on their income.

  19. Retailers are already set up to collect sales taxes.

    Unfortunately, there also exists an organization tasked with tracking incomes, and collecting taxes on them.

    We could shrink it substantially if we could rationalize the (single!) rate at which those earnings were taxed.

    1. The complexity in income taxes has nothing to do with charging different people different rates. The complexity is in defining what is and isn’t income.

  20. The complexity is in defining what is and isn’t income.

    That was the point I was making (in my head). But I also think a single flat rate is the way to go. (In conjunction with consumption taxes.)

    And- why should your income be any more “private” than your expenses? Been doing something you oughtn’t?

    1. Yeah, I apparently didn’t work hard enough last year and I didn’t make much money. It is quite embarrasing. And other than business expenses, I don’t recall reporting any of my personal expenses except healthcare and tax expenditures.

    2. Although I strongly suspect my whiskey, tobacco and salt expenses will have to be reported in the near future.

  21. Since corporation are creatures of government issued privilege

    And since people are sovereign individuals

    We should raise taxes on corporations and eliminate taxes on people

  22. DJF, if people were really sovereign individuals in this day and age, none of them would pay taxes anyway.

  23. I would rather have the opposite. Repeal the personal income tax. Keep the corporate income tax. At least the latter has a libertarian rationale (at least for significant subset of libertarians): corporations are creations of the state that have legal privileges that other groups of individuals do not.

  24. When does a theoretical flat rate consumption tax apply- every time goods/services and money are exchanged (manufacturer buys components, retailer buys products, etc) or only at the end consumer level (consumer buys product at retailer)? This is where distinguishing between person and corporation helps.

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