Taxes

House Republicans Want to Make the Wrong Change to the Corporate Tax

A holiday recipe for government growth.

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Paul Ryan
JIM LO SCALZO/EPA/Newscom

Economic research shows that the corporate tax is harmful to workers' wages and overall economic growth. If left to their own devices, politicians still wouldn't be likely to reduce or eliminate the destructive tax. They only act when tax competition—whereby taxpayers shop around for favorable tax environments—forces their hand.

That's why it is alarming that House Republicans—I repeat, House Republicans—are talking about a change to the corporate tax that would insulate it from competitive pressures going forward. The change in the Ryan-Brady blueprint (as in Speaker of the House Paul Ryan and Chairman of the Joint Economic Committee Kevin Brady) would turn the corporate income tax into a "destination-based cash flow tax" with many similarities to European-style value-added taxes. To be sure, it would also lower the U.S. corporate tax rate—which is currently higher than any other in the developed world—and move to a common-sense territorial system in which income would be taxed only in the country where it was earned. It would also alleviate some of the double taxation of savings and somewhat simplify the tax code, even as it could become a compliance nightmare for companies.

But it would be simpler to just do away with the corporate tax altogether. Many people know that, but Republicans continue to appease those who view all money as belonging first to the government by insisting that tax cuts must be "paid for" according to the Keynesian math of the Congressional Budget Office.

So here's where we are: To pay for their desired cut to the corporate tax rate, Republicans are suggesting a conversion of the corporate income tax into a "cash flow tax," or a consumption tax base with a deduction for payroll. Protectionist "border adjustments" then make it "destination-based" by exempting exports from taxation and denying deductions for imports. The move might be better described as belonging to the idiotic school of export mercantilism, meaning there would be higher prices for consumers (including domestic producers that use imported parts). I can also guarantee that contrary to the promise lawmakers will make about it, this feature would not appreciably boost exports.

But the real danger from the plan comes from how it would change political incentives. Whereas corporate income tax rates have declined throughout the rest of the world as nations compete to keep businesses from fleeing their jurisdiction, the destination-based cash flow tax would be inescapable. If you sell in the U.S. market, you would pay the tax, regardless of where your company is located.

That means that future politicians would have little incentive to keep rates down.

This is just a recipe for bigger government, as Europe discovered when it instituted the very similar value-added taxes. In part because of their regressive nature—yes, VATs hit lower-income taxpayers the hardest—they are revenue engines and have helped fuel the dramatic growth of European governments in recent decades.

Academic supporters of the new tax admit that their goals are to grow government and institute more progressive tax burdens. Republican lawmakers think they need it to trade for lowering the corporate rates, but they ought to know better than to hand future Congresses the means to easily power government growth.

COPYRIGHT 2016 CREATORS.COM

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  1. Ugh, so a corporate “fair” tax.

  2. If you sell in the U.S. market, you would pay the tax, regardless of where your company is located.

    That means that future politicians would have little incentive to keep rates down.

    Yes they would. Those taxes get passed on to consumers and consumers vote. And people often like their foreign made goods.

    This is just a recipe for bigger government, as Europe discovered when it instituted the very similar value-added taxes. In part because of their regressive nature

    VATs apply to all goods whether they are made foreign or domestically. So people can’t avoid them. That is what made them a cash cow. These taxes would only apply to foreign made goods. Indeed, the entire first half of this article is De Rugy complaining about the protectionist nature of them. Well, if they are protectionist, they will won’t collect much money because they will cause people to buy more goods produced domestically and less imported goods. And the higher they are, the more that will be the case and the less money they will collect.

    Does DeRugy just not understand how these taxes work or is she just that fucking dishonest. What a sloppy, poorly written article.

    1. Don’t you know consumers never change their behaviour due to the effect of taxation, even if companies will relocate to escape it?

    2. That is what made them a cash cow. These taxes would only apply to foreign made goods

      I think you are wrong here, John. These taxes would apply to all goods sold in the US, regardless of their country of origin. At least as I read the AEI summary. Also, realize that Dr. de Rugy is advocating for no corporate taxes, so you’re probably not going to phase her with arguing about whether we’re taxing some corporate sales or all corporate sales.

      1. I misread DeRugy. The tax would Protectionist “border adjustments” then make it “destination-based” by exempting exports from taxation and denying deductions for imports.. So might be a cash cow. But I fail then to see how it is protectionist. Foreign goods would be subject to the same tax as domestic ones. We are just exempting taxes on things that are exported. I don’t see how you can fairly call that a protectionist tax. Yet, she does.

        1. Its not super clear in her statement. In this quote from the paper, it is more transparent.

          Today, all of our major trading partners raise a significant portion of their tax revenues through value-added taxes (VATs). These VATs include “border adjustability” as a key feature. This means that the tax is rebated when a product is exported to a foreign country and is imposed when a product is imported from a foreign country. These border adjustments reduce the costs borne by exported products and increase the costs borne by imported products. When the country is trading with another country that similarly imposes a border-adjustable VAT, the effects in both directions are offsetting and the tax costs borne by exports and imports are in relative balance. However, that balance does not exist when the trading partner is the United States. In the absence of border adjustments, exports from the United States implicitly bear the cost of the U.S.income tax while imports into the United States do not bear any U.S. income tax cost. This amounts to a self-imposed unilateral penalty on U.S. exports and a self-imposed unilateral subsidy for U.S. imports.

          1. Let’s see if we can translate:

            Other countries behave badly

            US corporations suffer

            We should also behave badly to ease the suffering of US corporations

            1. Why is it behaving badly Kinnath? If I sell something in Japan, why do I owe the US government, as opposed to the Japanese government taxes on the money I make? Moreover, why do I owe both of them taxes the way I do now?

              1. Two separate issues:

                Other countries set up tax regimes to promote exports and inhibit imports.

                The US taxes all US companies regardless of where they sell their stuff.

                We can fix the US problem without setting up VATs with border adjustments.

                1. We can fix the US problem without setting up VATs with border adjustments.

                  This isn’t a VAT. DeRugy just says its liek a VAT. But it is not. This is not taxing companies for the money they make on products they export. That is all it is. It only is VAT like because the way you do that is to tax them based on the number of products they sell overseas. You falling for DeRugy’s bullshit here.

                  This is a totally rational and proper thing to do if you are going to have a corporate tax. I understand it would be better to get rid of it altogether. But if you are going to have one, this is the only rational way to do it.

                  1. You falling for DeRugy’s bullshit here.

                    The foreseeable consequence of trying to work and post at the same time. 😉

                  2. Except that — as best I can tell from reading two papers on it and not being an expert — the WTO only allows VAT or something that looks suspiciously like a consumption tax of some sort to engage in border adjustment. Probably in order to fuck the US, but I’ll have to do more research to verify that.

          2. That makes it clear and it makes DeRugy look even more stupid. Lets say I have a company and I make widgets and I sell 25% of my widgets overseas and 75% of them domestically. What this rule would do would allow me to only pay corporate taxes on the 75% of my widgets that I sell inside the US. The 25% of my profits I make selling widgets overseas is exempt from tax.

            What the fuck is her problem with that. If I am selling the things overseas, I am effectively making the income overseas. One of the worst and must unjust things about our tax system is that they have made it world wide. The US government claims to own your ass no matter where you go or what you do. And that is bullshit. This would roll some of that back. It would tell companies “if you sell shit overseas we are not going to tax you on it”. Why should the federal government be taxing me on transactions that didn’t occur within its jurisdiction even if I made the products here?

            1. What you’re saying here is accurate and I tend to agree with it. But, it’s not the total of what the bill is going to do.

              The tax is on your revenues less the cost of your payroll. And yes, you don’t get taxed on your exports. The thing is imports don’t get to deduct the cost of payroll. They get taxed on the full revenue.

              1. I don’t have a problem with that. The transaction took place within the united states. So the profits generated by that are fairly subject to being taxed in a way profits made from transactions overseas are not.

                1. See below.

                  It isn’t with not taxing exports that there’s a problem. That’s essentially not particularly different from moving to territorial taxation.

                  Where there’s a problem is saying you’ll tax imports on one basis and domestic production on another basis, but both at the same rate.

          3. Fuck VATs. They’re an accounting nightmare that only serve to grow the tax compliance industry and do nothing to increase competitiveness.

            If these assholes think that they’re lowering taxes they’re kidding themselves or lying to everyone else. The taxes may be lower in the near term but by instituting the mechanism of collecting VAT, they are making it easier to tailor and create carve-outs and punishments in the tax code as they see fit in the future.

            There is nothing redeemable about this.

            1. It is not a VAT. Even DeRugy admits that.

              1. Admittedly, I have an allergic reaction to VATs. I’ll have to review the proposal in more detail, but if it is as ambiguous as it seems to be, then I won’t like it. The last thing the tax code needs is more complication.

          4. “In the absence of border adjustments, exports from the United States implicitly bear the cost of the U.S.income tax while imports into the United States do not bear any U.S. income tax cost. This amounts to a self-imposed unilateral penalty on U.S. exports and a self-imposed unilateral subsidy for U.S. imports.”

            Why should good produced in other countries and imported into the U.S. bear any U.S. income tax cost in the first place? What U.S. government service was being provided to the overseas company in their own country where they made those goods that warrants those goods being subject to U.S. income taxes?

            1. Why should good produced in other countries and imported into the U.S. bear any U.S. income tax cost in the first place?

              Because the transaction selling it took place here. The profits were made here and thus the income is fairly subject to tax here. If I make something in Indiana and sell it there, I have to pay taxes on the profits I make. Why should someone not be subject to taxes if they make it in Europe and sell it at the same place?

              1. The tax should be based on the sell price minus the transfer price. This, of course, allows for gaming the transfer price, but if the flat corporate tax rate is low, then it’s not going to be a huge issue.

              2. Private company profits are not a government provided service.

                I repeat, what U.S. government service was being provided to the overseas company in their own country where they made those goods that warrants them being subject to U.S. income taxes?

              3. Split the two roles. Assume a US retailer and a foreign manufacturer.

                It seems this proposal effectively taxes both the retailer (who is definitely selling to US customers inside the US), and the manufacturer (who, for all we know signed the contract in their own country and never set foot in the US).

          5. So, it seems like this change is a good thing.

            Her primary complaint seems to be that they haven’t done away with corporate tax altogether.

      2. Eh. Now I’m thinking I conflated two things when I read p. 28 in the actual policy paper. This is some fucked up shit. Only government economists could have dreamed up border adjustments.

        1. Wouldn’t it be nice if say I don’t know, the author of this article untangled it for us? What an idea.

          I assumed it only applied to foreign goods sold in this country because DeRugy was bitching about it being protectionist. If it applies to all goods sold in this country, then its not protectionism and it sure as hell isn’t mercantilism. Since when is the US not taxing income made in foreign countries “mercantilism”.

          This article is just horrible.

          1. As I say above. The ground to say it’s protectionist is that it taxes imports at effectively a different rate from domestically made products.

            1. So it is a sales tax on imports and a profit tax on domestic production?

              1. My understanding is, essentially (ignoring other costs for domestic producers), yes.

                1. so its a tax on everything? thats what I’m getting out of this

    3. John, people don’t understand how taxes work. Corporate taxes are already passed on to consumers today. How many people do you engage with (excluding Reasonoids) who are demanding corporate tax relief?

      1. True. But I don’t see how this tax is any more or less subject tot hat phenomenon than an ordinary corporate tax. DeRugy’s argument is that this tax is somehow different because it collects all of this money without people knowing it. I don’t see how you can’t say the same thing about the existing corporate tax. So how is this tax a “ticket to big government”?

        Her prose is so bad, it is often difficult to argue with DeRugy because it is hard to figure out exactly what her position is.

        1. I agree this isn’t one of her better articles, but it was you who said, “Those taxes get passed on to consumers and consumers vote.”

          My comment was consumers don’t vote based of corporate taxes, well other than to vote that corporate taxes should be higher.

          That’s a confused sentence but I don’t know how else to explain the average voter.

        2. “Her prose is so bad, it is often difficult to argue with DeRugy because it is hard to figure out exactly what her position is.”

          Sometimes she writes well. This article is badly written, well below her normal standards.

          1. My favorite part.

            To be sure, it would also lower the U.S. corporate tax rate?which is currently higher than any other in the developed world?and move to a common-sense territorial system in which income would be taxed only in the country where it was earned. It would also alleviate some of the double taxation of savings and somewhat simplify the tax code, even as it could become a compliance nightmare for companies.

  3. Looks like it. Go flat (or better yet none) or go home.

  4. The GOP should try to get rid of the corporate tax in its entirety. The question is: can they? They may have enough squishes who do not think it should be eliminated or enough who would be intimidated by the inevitable Democrat demagoguery that corporations would be avoiding paying their “fair share” if it was done away with. Politics is not about what is logical or what is best for society, it often is about what you canactually do, becausr politicians are often a stupid and cowardly lot.

    1. The smart move would be to include a tax increase on rich individuals in a bill that abolished corporate taxes, thereby dulling the Democrats attack that that tax changes are intended to benefit the rich. Then, in a few years, when the high tax rates on the rich are bringing in lower levels of revenue than the previous, lower rates, those rates can individually be adjusted downwards in the name of increasing revenue.

      1. The rich don’t pay taxes. They avoid them. It is the upper middle class and the near rich who pay taxes.

        1. The rich don’t pay taxes.

          Because the rich can afford accountants and attorneys as well as well-placed political donations.

  5. House Speaker Ryan: eliminate taxes, cut spending, then fuck off.

    1. Ha, good one. Rs don’t give a damn about cutting spending or fiscal conservatism. They just spend it on their own pet projects.

  6. Academic supporters of the new tax admit that their goals are to grow government and institute more progressive tax burdens.

    That is a pretty bold and verifiable claim. Would it be too much to ask that DeRugy provide some documentation of that? Which academics? And what exactly are they saying? Indeed, if she had given a specific example or two her case would be a lot more compelling.

    It might be the case that this tax structure is a cash cow for the government. If it is, however, then it is not protectionist. It can’t both cause people to buy domestic goods and turn away from foreign ones and also be a cash cow.

    If DeRugy thinks this is a bad idea, good for her. Maybe she is right. It would be nice if she would give a coherent case for why that is rather than just throwing two mutually exclusive arguments against the wall hoping one sticks.

    1. It is a bad idea because it is predicated on the bogus idea that cutting one tax has to be “paid for” by creating some substitute type of tax.

      And on the bogus notion that trying to manage/direct voluntary trade between private parties should be any business of government.

      Just flat out get rid of the corporate income tax and let that be it.

      1. It is a bad idea because it is predicated on the bogus idea that cutting one tax has to be “paid for” by creating some substitute type of tax.

        Perhaps, but that is not the argument she is making. Moreover, reason has spent a whole lot of time talking about the need to do something about the debt. So, I don’t see how they could have a problem with saying “we are not cutting revenues until we do something about the deficit and the debt.”

        And on the bogus notion that trying to manage/direct voluntary trade between private parties should be any business of government.

        Then all taxes and government itself is bogus, because every tax effects and by implication manages the voluntary trade between private parties.

        1. The corporate tax rate is above the peak of the Laffer curve, so a tax cut could do both.

          1. “The corporate tax rate is above the peak of the Laffer curve, so a tax cut could do both.”

            Um, no it’s not even close. Most of the research says the Laffer curve inflection point is around 70%. Granted, that’s the stupid high point, where additional taxes become negative. However, the current corporate rates are way below those levels.

            1. Most of the research says the Laffer curve inflection point is around 70%.

              70% of what?

              There isn’t one Laffer curve. There is a different one for every place, time, and type of tax.

            2. I have seen in the neighborhood of 20-30%.

              Citation needed on 70%.

              1. Quick google search says we are both close to correct:

                Economist Paul Pecorino presented a model in 1995 that predicted the peak of the Laffer curve occurred at tax rates around 65%. A draft paper by Y. Hsing looking at the United States economy between 1959 and 1991 placed the revenue-maximizing average federal tax rate between 32.67% and 35.21%.

                1. robc,

                  I believe, pay-walled, that this is the Pecorino piece you refer to:

                  http://www.sciencedirect.com/s…..3295012249

                  Since I am not willing to pay $40 to read the paper to be sure all I can do is guess. My guess is the disparity is due to Pecorino looking at all taxes whereas Y. Hsing looked specifically at federal rates. I don’t see how 65% leaves anything for state or local taxes if that number is just the top federal rate.

                  I still don’t understand why we want to maximize tax revenues anyway. Obviously the number is useful for knowing we shouldn’t spend more than X amount or we’ll run out of money. Otherwise we shouldn’t really care. For example, we want a margin of error in case we have to deal with a major cock up like what Veolia did to Pittsburgh’s water system. Being able to raise taxes in the short term without crashing the economy seems like a no-brainer to me.

        2. Then all taxes and government itself is bogus, because every tax effects and by implication manages the voluntary trade between private parties.

          If taxes are neutral it’s impact on voluntary trade only happens at the margins. It’s when taxes are designed and implemented to favor or punish specific types of trade that things become problematic.

          To anarchists all taxes are illegitimate.

          1. Not just anarchists.

            I personally am fine with the Single Land Tax, but I can see a government without any taxation being possible.

          2. If taxes are neutral it’s impact on voluntary trade only happens at the margins. It’s when taxes are designed and implemented to favor or punish specific types of trade that things become problematic.

            This tax doesn’t do that. It just says, you don’t have to pay taxes on money you make outside the US. I suppose in some ways that “favors transactions made out side the US” but only if you take a very expansive definition of it.

            1. I wasn’t talking about this tax. I was specifically commenting on the line I quoted. A neutral tax, one where all transactions are treated the same way, would only have a a negative impact on the margins.

              Yes, this is a simplistic view of taxes, and no, I don’t care.

        3. “Then all taxes and government itself is bogus”

          All taxes that are not structured to be strict user fees that charge each person/company/entity for exactly the dollar value of government services each has received personally and directly (with no redistribution of wealth) ARE bogus.

          “because every tax effects and by implication manages the voluntary trade between private parties.”

          Not really – real property taxes do not attempt to manage the trade of goods between parties and neither do income taxes. Neither of those is a direct tax on goods being traded whether they are imported or domestic.

          1. All taxes that are not structured to be strict user fees that charge each person/company/entity for exactly the dollar value of government services each has received personally and directly (with no redistribution of wealth) ARE bogus.

            Yeah because the costs associated with enforcing such a regime would be zero and calculating all of that would be no problem at all.

            1. “Yeah because the costs associated with enforcing such a regime would be zero and calculating all of that would be no problem at all.”

              What percentage of current government spending amounts to nothing more than redistribution of wealth schemes? The majority of it. Those are by definition not services being provided to those being charged for them. It wouldn’t take any calculation at all to get rid of them.

            2. In theory, you could implement a contract tax. For any contract to be enforceable in court, the parties would have to agree to payment of said taxed on the market value of the contract.

              1. Obviously the tax would be payable at the inception of the contract.

            3. Yeah because the costs associated with enforcing such a regime would be zero and calculating all of that would be no problem at all.

              While probably true, that is one of the most damning indictments of government I have ever seen.

              1. Err, the implication of the sarcastic comment is probably true, not the literal reading of it.

          2. “All taxes that are not structured to be strict user fees that charge each person/company/entity for exactly the dollar value of government services each has received personally and directly (with no redistribution of wealth) ARE bogus.”

            So…if a man is murdered, his wife and/or children see their ‘user fees’ raised to cover the cost of police to investigate the crime, district attorneys to prosecute the case, a judge and court to hear the trial, and either room and board in a prison cell for life or the electric bill for the chair?

    2. All this tax regime would do is exempt exports from being taxed. Everything sold here would be taxed. Foreign goods would still likely be cheaper. The intent is to juice exports by reducing the amount of embedded taxes on goods manufactured in the U.S but sold abroad. It’s a subsidy for foreigners at the expense of U.S taxpayers.

      1. Yes. But beyond what it would or would not for imports, I don’t see anyone can say getting the US government to start respecting the borders of its jurisdiction and out of the business of taxing its citizens on anything they do anywhere in the world is a bad thing. And that is what this tax structure does.

        1. Now that I think about it this wouldn’t really be a handout to foreigner. Really not sure what I was thinking there. Aside from that I think we agree, foreign earnings of a U.S. company should not be taxed in the U.S.

          Do we actually agree on something?

  7. Eliminate the corporate tax rate. And then [sld] set a threshhold above which a company must pay at least a certain percent of retained earnings out as dividends, to prevent long term tax avoision. [/sld]

    I dont like the latter part, but it does lead to the earnings being distributed and income tax collected.

    I would say something like 20% of retained earnings above $10MM.

    Examples: Small business has $2MM in retained earnings at end of fiscal year 2016. In 2017 they would be required to distribute nothing.
    Slightly larger small business has $15MM in retained earnings. They would have to distribute $1MM (20% of $5MM).
    Large business has $1B in retained earnings. They would have to distribute $198MM in dividends.

    1. Why would you want to create disincentives for investment in capital equipment or acquisitions of other companies?

      1. 1. Did you not see the SLDs?

        2. I dont want it, but I know the argument against getting rid of the tax altogether is that businesses will hoard cash to avoid paying taxes.

        3. How is a 20% dividend worse for investment than a 35% income tax?

        1. Adjust the dividend to something like 20% of retained earnings above threshhold or 20% of earnings for recent year, whichever is lower.

      2. And 4. A company could issue the dividends then sell bonds/issue stock to bring back in capital for the investment/acquisition.

      3. It’s only a disincentive for investments or acquisitions within an existing corporation. If dividends are untaxed, shareholders themselves can use them to buy stock in other corps.

    2. I’m fine with the principle, but it would really amp up the concerns about short-termism that are in vogue. I would take it a step further and require that 20% of cumulative retained earnings over a 5, 7, or 10 year period would have to be paid out.

      I think you would also have to make tax code changes to treat dividends as ordinary income in order to make such a thing politically palatable, however.

      1. I think you would also have to make tax code changes to treat dividends as ordinary income in order to make such a thing politically palatable, however.

        Agreed.

      2. Why? Retained earnings are reflected in capital gains, which are taxed…

  8. The other thing that DeRugy doesn’t point out is the insidious effect of not having this rule. If you never bring the profit you make selling overseas back to the US, you never pay taxes on it. so what happens when US companies sell overseas is they set up foreign subsidiaries and they leave the profits they make in those countries. We are selling shit overseas and though our tax law telling companies to keep the profits they make over there and never bring any of it back to invest domestically.

    And getting rid fo that incentive structure is Mercantilism? WTF? I am flabbergasted anyone who claimed to know anything about taxes and the economy would have a problem with that, unless their goal was to ensure the American economy got fucked as much as possible.

    1. She didn’t mention it, but the Ryan-Brady framework would not tax foreign subsidiary income, except in the VAT case where you bought something from Adidas GmbH and they shipped the shoes from Europe to the US. So they would be free to repatriate it and use it for valuable shit.

      The other interesting thing is that debt-financed expansion would lose all of its tax breaks. I haven’t decided whether that is a good thing or a bad thing (assuming that there is a “good” or “bad” beyond having a simple system).

      1. The other interesting thing is that debt-financed expansion would lose all of its tax breaks.

        That wouldn’t bother me in the least.

        1. So if you rent a new plant, you get to deduct 100% of the rent, but if you buy a new plant, you get to only deduct the depreciation but not the interest?

          Why do people hate investment in capital so much?

          1. So sell stock in order to buy the plant, then buy back the stock over 30 years?

            There are ways around these things, but that is stupid.

          2. eh, I don’t really. In fact, deducting interest as an expense is preferable. My annoyance is more with credit being historically too cheap for large entities. It punishes small businesses, particularly those who work from cash reserves, and creates bubbles.

          3. It really puts equity backed financing like robc mentions on the same plane. Debt financing used to be a net deduction, now it would just another way of raising money for capital investment. Given that you would get to take a 100% deduction on the cost of all capital investment that isn’t land or inventory, the actual tax burden either way is purely theoretical and definitely not hostile towards capital investment.

  9. “destination-based cash flow tax”

    I know a fair bit about taxes and I’m just staring at this description…wondering…what the deuce are they talking about?

    All taxes are horrible, but if you need a 4 word descriptor for a new (or modified) tax, that’s probably a problem, right?

    Taxes should be simple and clear and obvious. It’s always a kick in the balls – but we should know who’s kicking us, how hard they’re kicking us, and when they’re kicking us. That way, it’s easier to get pissed off and push back. None of this kick in the balls with a velvet boot after a bunch of fancy dance moves.

    1. Complexity serves the purposes of Congress when it comes to taxes. It allows them to bury favors in the tax code.

  10. Like the minimum wage, the corporate income tax is actually 0%. The companies don’t pay it, we do (as consumers and as employees).

    1. They pay some of it. It is not so simple as just passing it onto consumers. Consumers are price sensitive too. You can’t just raise the price of something without any cost even if your competitors do the same. So how much of the tax consumers pay in higher prices and how much corporations pay in the form of lost profits is a very complex question that will vary with every individual market.

      1. Corporate taxes decrease wages, raise product prices, decrease dividends and prices paid to suppliers. Proportions vary by industry and individual company.

        Tax incidence is a complex matter, but economists do study it.

        1. Corporate taxes decrease wages, raise product prices, decrease dividends and prices paid to suppliers. Proportions vary by industry and individual company.

          They can do all that sort of thing. But every tax can do all of those things as well.

  11. Well, here’s an early test for President Trump and his staff.

  12. (Disclaimer one: I also support a zero corporate tax)
    (Disclaimer two: I generally prefer a simpler tax to a more complicated tax, all else being equal)

    With that said, I honestly can’t see what the problem is here. It’s reductive and (imo) counterproductive to rail against tax reform under the premise that the proposed reform would be susceptible to rates being raised.

    You know what other system is susceptible to rates being raised by politicians? All of them. And with the exception perhaps of a straight flat tax, all tax systems have the potential for those hikes to be hidden from the plurality of voters while carrying serious knock-on effects that reduce liberties for everyone.

    Re: the incentives to do business in the U.S. changing, I would argue they would change to be steadier, more predictable, and more fair. Sure there would be an adjustment period and turmoil, but it seems like a stronger policy in that regard, not less libertarian than currently.

    Overall, I don’t know if this is the best way to do it, but I definitely can’t see any reason to treat it as a horrifying mistake.

  13. But it would be simpler to just do away with the corporate tax altogether. Many people know that, but Republicans continue to appease those who view all money as belonging first to the government by insisting that tax cuts must be “paid for” according to the Keynesian math of the Congressional Budget Office.

    Many people know that Do they?

    Doing away with the federal corporate tax has about as many adherents as voted Libertarian in the last election.

  14. Talk about letting the perfect being the enemy of the good.

  15. Getting rid of the corporate income tax would be preferable, obviously. But, the possibility of the Democrats allowing that to occur is slim to none. I thought the squishes at Reason accept incremental change to no change? Wasn’t that the pitch with Johnson (sure a ‘purist’ would be ideal, but this he’s an OK step in the right direction)?

    1. The argument does seem to be that the perfect should be the enemy of the good. Unless there is an argument that the prop I sal is unequivocally bad.

      1. I sometimes wonder if DeRugy is on someone’s payroll. She seems to object to anything that might actually benefit the US. She has become almost a characterature of the nasty internationalist.

        1. I thought that was Suderman’s job.

      2. The argument does seem to be that the perfect should be the enemy of the good

        I suspect the reasoning is more that the people who suffer under tax burdens vastly prefer “Simpler” to “merely lower” (via more complex methods)

        as an business-analyst, i also personally feel that pain.

        If you get 5% lower net corporate tax headline-rate… BUT complicate the accounting for how the tax burden is identified? It makes it harder to estimate what company performance is going to be like when you’re dealing with very disparate revenue streams.

        When tax is being accounted differently on different types of cash-flow, it turns what used to be a simple “slap on a net *(-20-30%) to operating income” process into a line-by-line estimation.

        For small-medium sized businesses, it may raise expenses simply having change their processes for how they account for everything. For larger businesses, it may mean that its harder to value their stocks because analysts have less visibility on how taxes flow though to the bottom line.

        i think most managers would prefer a flat reduction in the rate, or an elimination of that tax, to any new form of tax regime… even if the net rate ends up lower in the process.

  16. Academic supporters of the new tax admit that their goals are to grow government and institute more progressive tax burdens. Republican lawmakers think they need it to trade for lowering the corporate rates, but they ought to know better than to hand future Congresses the means to easily power government growth.

    Why do they need to trade anything? I recall certain Democrats reaction to winning big in Congress telling the Republicans to “get in the backseat” because “elections have consequences”. Do the Republicans need any Democrats to simply abolish or lower the corporate tax? If they do, I don’t think they need many, certainly not enough to justify being so conciliatory to the Democrats that are themselves incapable of doing the same when they hold power.

  17. Actually if anything we should be going entirely. to consumption taxes like the Fair Tax

    1. I’d do quite well under the Fair Tax as I could easily sell my skills in repairing that TV with a bad capacitor. Walmart would be hurt as the tax burden would be completely shifted to the new TV that they are trying to sell.

      I favor a flat rate income tax, with earned and unearned income treated as equals, with a standard, refundable, credit for all taxpayers. The overhead won’t be much different from a consumption tax that prevents the consumption tax from being regressive and the system is already in place. Most likely a national consumption tax will end up being in addition to income taxes so I’d rather not add it to the mix.

  18. I don’t understand comments about VAT being an accounting nightmare. If one were to stipulate corporations should pay taxes, then a VAT is much simpler to account for than the tax rules presently in place. Case in point: keeping track of how much depreciation you can write off in year five for a machine estimated to last 8 years.\VAT is easy to account for: buy widget materials for $100 and pay, say, $15 VAT to the vendors which you debit to your VAT liability account. When you see the assembled widget out the door for $200, you charge the buyer another $30 for VAT which you credit to your VAT liability account.. Your VAT liability account nets at $15, which is the VAT on the value you added to the widget and you send it to the government.

  19. What I don’t understand is how instituting taxes of the type discussed here are a substitute for corporate taxation, unless they apply only to incorporated businesses.

    Has anybody brought up lately the logical alternative to abolishing corporate income taxes, namely making dividends tax-free?

    1. Making dividends tax-free doesn’t make sense. Most of the incidence falls on labor(62-67% in the studies I’ve seen) and then consumers(whatever the business can get away with) so we’d want to get rid of earned income and consumption taxes as well or we’ll have more job loses. Why would we want to shift the tax burden to the method with the highest overhead costs?

  20. One thing is certain, no one in DC has the first clue; however, the answer quite simple, kill the current code (no one knows what is in the current tax code anyway). Start there but at least use best practices or said another way – “keep it simple stupid!”

  21. “Republicans continue to appease those who view all money as belonging first to the government by insisting that tax cuts must be “paid for” according to the Keynesian math of the Congressional Budget Office.”

    But I thought you had just demonstrated that when Republicans, a la Ronnie and Georgie, don’t pay for their tax cuts, deficits increase, because everything’s “free”! I guess, danged if you do, and danged if you don’t!

    1. This idiotic article is a prime example why Libertariansim, Libertarian Party and the dogma “Liberty” are failures. Abolishing taxation wither income or corporate level is stupidity. We need revenue to run the government. Maybe we can talk about reducing it to make growth but any nonsense about abolishing it because of liberty or yelling “taxation is theft” are moronic things to say. Their is “House Republicans” because Republicans and Conservatives understand what government is. Their is no such thing as “House Libertarians” because the Libertarian Party have “zero” members in both Champers, zero Governors or any one serving in 6000 state legislature seats id because Libertarians are close minded ideologues in every policy. Anything to reach that false nirvana of liberty.

  22. This idiotic article is a prime example why Libertariansim, Libertarian Party and the dogma “Liberty” are failures. Abolishing taxation wither income or corporate level is stupidity. We need revenue to run the government. Maybe we can talk about reducing it to make growth but any nonsense about abolishing it because of liberty or yelling “taxation is theft” are moronic things to say. Their is “House Republicans” because Republicans and Conservatives understand what government is. Their is no such thing as “House Libertarians” because the Libertarian Party have “zero” members in both Champers, zero Governors or any one serving in 6000 state legislature seats id because Libertarians are close minded ideologues in every policy. Anything to reach that false nirvana of liberty.

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