tag:blogger.com,1999:blog-582368152716771238.post6102573026699659325..comments2024-03-29T07:18:14.271-05:00Comments on The Grumpy Economist: Corporate tax (or is it?) reading list John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger36125tag:blogger.com,1999:blog-582368152716771238.post-55379169425400430322017-05-01T10:44:58.911-05:002017-05-01T10:44:58.911-05:00A fun VAT/sales tax issue is always the basis of t...A fun VAT/sales tax issue is always the basis of the percentage.<br /><br />Some use the percentage as the amount of the final price while some use it as the percentage adjustment to the prior price.<br /><br />Consider a 20% adjustment to the sale price (Sales Tax in Texas approach) - $1 good is priced up to $1.20. The 20% adjustment generates 20 cents of tax revenue, which is 16.7% of the paid amount.<br /><br />If the tax is "baked in", aka, 20% of the original $1 was tax (i.e., the same 20 cents of tax revenue) then the original price was actually $0.80 and the price was increased by 25%.<br /><br />So, if the VAT is handled as "17.5% of your receipt was VAT" then the effective tax rate on the purchase was actually 21.2%.<br /><br />Magical economist math to make taxes not seem as high as they actually are.Philhttps://www.blogger.com/profile/01416362323637480724noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-32781656097007412992017-02-07T17:23:26.543-06:002017-02-07T17:23:26.543-06:00Speaking of Hong Kong,
https://en.wikipedia.org/w...Speaking of Hong Kong,<br /><br />https://en.wikipedia.org/wiki/Legislative_Council_of_Hong_Kong<br /><br />Power in the Legislature is divided across 21 political parties, but only 70 seats are available in the Legislature. That division of power makes it difficult for tax or spending policies to be adjusted to suit the whims of one particular group.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-68853184767287844182017-02-06T06:31:12.585-06:002017-02-06T06:31:12.585-06:00Analogies do break down, but here I was pointing o...Analogies do break down, but here I was pointing out that enormous, mind numbing complexity arises in the private sector too, and for sound reasons. <br /><br />I suspect, given the ideological leanings of the posters here, that if Microsoft were wholly owned by the government we'd be talking here about its "wasteful inefficiency" and "productivity sapping bloat."<br />JZhttps://www.blogger.com/profile/12994372644670111315noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-83927820024699275972017-02-05T21:12:35.904-06:002017-02-05T21:12:35.904-06:00As a Linux user (it made my life and work so much ...As a Linux user (it made my life and work so much less stressful) I fully agree with all of what Frank just said.<br />And it goes further. The complex tax code employs people (consumes labour, supposedly a "scarce resource") trying to figure out how much to pay and how to avoid paying so much. If the tax code were simple, and without loopholes, then that presently wasted labour could be turned to something productive. And, as the Professor has pointed out so often, productivity is not doing so well.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-25812626586905330962017-02-05T15:53:45.571-06:002017-02-05T15:53:45.571-06:00"VAT punishes those most...."
I don'..."VAT punishes those most...." <br />I don't think of taxation as punishment. I think of taxation as mandated contribution to maintenance of the public underpinnings of the economy. <br />Now if a poor person pays tax while a rich person pays for a personal cruise ship, then I think of that as punishing (the poor).<br />On the other hand if someone like Warren Buffet consumes some stuff, and pays tax on that stuff while a poor person pays the same amount of tax on the same amount stuff, well OK so far. If one like Warren Buffet has a huge amount more income that he spends buying productive businesses then that can be OK too. Just as long as he is a good steward of that capital, those businesses. We certainly don't want capital owned by people who will sell it off in exchange for trinkets. Neither am I in favour of capital being owned by people who have machines buying it one millisecond and selling it the next millisecond. We need good stewards looking after things like container ships, buildings, factories and their contents.<br />It is all a matter of stuff being shared. Some is needed for operating all the things that are better done by a government than by players in a market. Some things are better done one way, other things better the other way.<br />I happen to be most convinced by Kotlikoff's arguments.<br />A taxation system that is hugely complicated so that the most privileged can have personal cruise ships and airliners without contributing to tax revenue needs to go. <br />The house tax plan, so far, looks like pussy-footing around the edges of the issue. R+R+R has the power to sweep away all the accumulated nonsense and install a simple system that serves all people reasonably fairly and efficiently. If they fail to do so they will prove, finally, that they are simply servants of privilege.<br />--E5Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-73795105584516342032017-02-05T10:30:08.310-06:002017-02-05T10:30:08.310-06:00JZ,
It's a false analogy. I can live and wor...JZ,<br /><br />It's a false analogy. I can live and work in the United States and never touch Microsoft Windows operating system - I can use MacOS or some variant of Unix or even never use a computer at all.<br /><br />If I live and work in the United States, I cannot avoid the U. S. tax code.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-73258588358133630752017-02-05T01:18:50.144-06:002017-02-05T01:18:50.144-06:00Most VATs are not "pure", in that the ba...Most VATs are not "pure", in that the base does not include all consumption. For example, Australia's excludes food, health, education and child care. It applies at a 10% rate and raises revenue of about 3.5% of GDP.Patrick Sedgleyhttps://www.blogger.com/profile/00778612868939612076noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-1783548699795470072017-02-04T15:20:46.372-06:002017-02-04T15:20:46.372-06:00come to think of it the corporate "double&quo...come to think of it the corporate "double" tax (tax on corporation income followed by personal tax on dividends) is like the current personal income tax in which first the state takes its cut and then fed takes a percentage of what's left.<br />If the deductibility of state tax (on federal return) were eliminated then both taxes are assessed on the full amount.<br />--E5Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-55466548511863170642017-02-04T13:13:33.348-06:002017-02-04T13:13:33.348-06:00"the corporation pays $1 tax, and you then pa..."the corporation pays $1 tax, and you then pay more personal income tax"<br />I was told that the War of Independence was fought because of double taxation. I have never found out whether or not that is true. But it does seem to me silly that money can get taxed twice as it flows from value generator to value consumer.<br />So it seemed very odd to me when I heard Ronald Reagan, in a speech while President, say that he wanted to eliminate the deduction, on federal income tax returns, for state income tax paid. Wouldn't eliminating it lead to double taxation? And didn't I just hear that being proposed again?<br />--E5Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-46934098241439057642017-02-03T16:32:47.511-06:002017-02-03T16:32:47.511-06:00Why, exactly, must the U.S. tax code be "unde...Why, exactly, must the U.S. tax code be "understandable" by one person?<br /><br />Let's draw an analogy with another large body of code. Should the Microsoft Windows operating system's (programming) code be understandable by one person? That's complete nonsense.<br />JZhttps://www.blogger.com/profile/12994372644670111315noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26420467215366646852017-02-03T11:49:57.589-06:002017-02-03T11:49:57.589-06:00It seems a "simple" flat tax of 20% woul...It seems a "simple" flat tax of 20% would solve much of the fiscal and political problem. At 17.5 %, 3T in fed tax revenue doesn't cover 3.8T in mandatory and discretionary spending. My conjecture: 20% tax rate and greatly reduced regulation would bring about growth of 3.5% to 4%. Holding Fed spending at 3.8T, tax revenue of 4.16T brings a surplus of 36B. Hong Kong uses a flat tax. Hong Kong is disciplined as to its policies. Their constitution and tax system make it difficult for the government to increase taxes, increase taxes progressively, increase public spending as a percentage of GDP or operate at a deficit.David Seltzernoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-73932921803007843912017-02-02T21:55:49.715-06:002017-02-02T21:55:49.715-06:00If John Cochrane does not understand the U.S. tax ...If John Cochrane does not understand the U.S. tax code, or the changes under discussion, then can I? Or anyone on the street? <br /><br />KISS.<br /><br />Whatever taxes are, they must be simple. I prefer a mediocre simple tax plan to complicated (and ultimately corrupted) taxes. <br /><br />A national sales tax, fossil fuels taxes, a fat border tax, and let it go at that. <br /><br />I would like to phase out FICA taxes, but that $1 trillion program is too deeply embedded for us to do anything about. <br /><br />My plan is not perfect, but you can actually understand it. <br /><br />That puts it head-and-shoulders above what we have now, or all the proposals on the boards. <br /><br /><br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-57807321629525564062017-02-02T21:11:10.066-06:002017-02-02T21:11:10.066-06:00Would a VAT distort the industrial organization la...Would a VAT distort the industrial organization landscape, inducing far too much vertical integration? This isn't always bad: Tesla. But anyway, my preference is to all taxation via a progressive consumption tax (see details offered by Robert Frank, Cornell).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-61341426244179193982017-02-02T17:28:00.890-06:002017-02-02T17:28:00.890-06:00I find that whole exchange rate nullifies the effe...I find that whole exchange rate nullifies the effect of the border adjustment thing a bit hand wavy. How do we know savings and investment patterns aren't going to change? Wasn't that supposed to be the benefit of a VAT, that it encouraged saving? And the revenue from the import tax would be greater than the expenditures on the export subsidy, which would increase public savings. Even if this doesn't matter for a true VAT, the proposal allows deduction of wages, provided those wages are paid in the US. It may be true that the dollar takes care of everything, but I remain unconvinced. Kailerhttps://www.blogger.com/profile/18077588475487129146noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-66330935462071986182017-02-02T16:32:12.392-06:002017-02-02T16:32:12.392-06:00Cochrane writes (in critique of Summers), "Ec...Cochrane writes (in critique of Summers), "Economists are supposed to first ...". But Summers is arguing public policy, of which economics is but one part. <br /><br />There appears to be a pattern of clean-room, context-free policy thinking here. Corporate tax should be zero. Government regulation should be zero. With ideology sweeping away any possibility of net negative societal impact.<br /><br />JZhttps://www.blogger.com/profile/12994372644670111315noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-29342267637720918952017-02-02T15:54:18.152-06:002017-02-02T15:54:18.152-06:00I’m not a fan of Kotlikoff’s preferred tax plan:
...I’m not a fan of Kotlikoff’s preferred tax plan:<br /><br />“a) eliminates the corporate income tax, the personal income tax, and the estate and gift tax, b) introduces a value added tax (VAT), a progressive personal consumption tax on top consumers that exempts consumption financed by labor income, an inheritance tax that kicks in after the receipt of $5 million, and a Co2 emissions tax of $80 per ton, c) eliminates the ceiling on the FICA payroll tax, and d) provides a $2,000 annual payment to each U.S. citizen.”<br /><br />a & b) I wonder how they could enforce the progressive consumption tax on top consumers if they’ve repealed the personal income tax. A Bradford X tax does a more effective job of this using existing (modified) tax structures. By the way, his carbon tax is too high. The best existing research (EIA) puts the marginal social cost of carbon at $37 per metric ton. A carbon tax a twice the magnitude of the externality is just as bad as none at all.<br /><br />c) In other words, a flat tax on wage and salary income. Keep in mind that higher FICA tax payments would also translate into higher Social Security payments, so such a provision would not raise as much revenue in the long run as it may initially appear.<br />-----<br />I recommend Progressive Consumption Taxation, by Alan Viard and Robert Carroll.<br />Cody Khttps://www.blogger.com/profile/16033084487096540029noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-78610476235954809032017-02-02T15:53:52.776-06:002017-02-02T15:53:52.776-06:00As much as I usually enjoy your blogs, your analys...As much as I usually enjoy your blogs, your analysis here misses a lot of important ideas. As you noted: <br /><br />“Thus, a pure VAT of 17.5% with no Federal personal income tax, estate tax, excise tax, corporate tax, or anything else is revenue neutral… So if this tax needs to have a 30 percent rate just to generate 1.5% of GDP, its base must be tiny.”<br /><br />The base of a VAT is all consumption, and the tax is applied at a uniform rate (ideally). But the base of a progressive consumption tax is not comparable to the base of a VAT, and the wage deduction is critical to this difference. By allowing firms to deduct wages, and then taxing those wages at a progressive rate, a Bradford X tax falls entirely on consumption but maintains some progressivity.<br />-----<br />“So, I infer that the tax base is only on interest and dividend payments… A tax that truly does not distort incentives to consume vs invest must not distort the individual decision to consume vs. save, no? (Or am I missing something here?)”<br /><br />Under an actual Bradford X tax, the tax rate on investment income (capital gains, dividends and interest) is zero. Due to political constraints (on letting wealthy people pay no taxes), the Ryan-Brady plan reduces top rates on investment income by only taxing half of it. <br />-----<br />“The Trump campaign plan only mentions cutting the corporate rate to 15%. What are we talking about really? Or is this all a kerfuffle interpreting the latest tweets? Are we just making this up?”<br /><br />Trump’s original plan was just massive tax cuts (except for single parents). After the primary, a few economists convinced him to alter his tax plan to look more like the House GOP’s plan, to let Trump claim the win but on a better tax plan than his original one. It is likely that any eventual plan will be based on the House plan.<br />-----<br />Holman Jenkins’ complaint is frankly absurd: <br /><br />“In the short weeks since Mr. Trump was elected, the vision of clean, straight tax reform has gone out the window. Instead of merely lowering or, ideally, ending the corporate rate, we may get a 20% border-adjustment tax to go along with a 20% corporate income tax. That is, two taxes instead of one, which Congress can immediately start peppering with exemptions, exclusions and deductions.”<br /><br />That is NOT two taxes; it is ONE tax that includes imports but not exports. As an additional note, a DBCFT is already vulnerable to WTO challenge, but filling the border adjustment with exemptions and exclusions would essentially guarantee a loss at the WTO, as the border adjustment must be uniform or it becomes a tariff. <br /><br />The border adjustment has been a consistent source of confusion for the media. Alan Viard has an excellent forthcoming article in Tax Notes on the economics of the border adjustment; I suggest you read it.<br />And as Greg Mankiw noted, the Ryan-Brady plan in effect repeals the corporate income tax and replaces it with a cash-flow tax.<br />-----<br />“Just what were the political constraints that went in to the better way tax plan?"<br /><br />He would not make a plan that would lose too much revenue. On the individual tax side, the plan is surprisingly close to revenue-neutral; the business tax side loses revenue but also eliminates the most distortionary tax.<br /><br />I’m sure Ryan would be fine with a VAT, but it’s too unpopular in the US to pull off. Democrats would hate it for being regressive, and Republicans are afraid that it would be too easy to raise. (I don’t like this line of argument, but they still use it.)<br />Cody Khttps://www.blogger.com/profile/16033084487096540029noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-58010688222603255422017-02-02T14:53:57.563-06:002017-02-02T14:53:57.563-06:00am I correct in thinking that a VAT punishes those...am I correct in thinking that a VAT punishes those most that have to spend the most of their income even with some tortured mechanism for deducting income? For example Warren Buffet spends a tiny fraction of his income on "stuff" where as the middle homeowner with 3 kids spends 105% of their income of "stuff". Wouldn't a flat low rate income/asset tax with almost no write offs be more fair? Why should other taxpayers pay more when a Billionaire donates to a cat charity where the director makes $500k for example. Charity should be that...not a grand write off scam. And don't even get me going on carried interested. Also why should business owner worth millions grow their company taxfree(long term gain) while joe six pack pays his income weekly! <br /><br />am I missing something....about the VAT...for instance would charity pay a VAT?? I get the notion that a business owner selling something to a customer would be the tail end of the transaction....but lets say I know plenty of business owners that buy things sale tax free that aren't part of the business cycle. You know like the business owner flying to a ski holiday. Why does it seem the haves seem to do better than the have nots? VAT is not a fair tax in my estimation....too easy to avoid. Guyhttps://www.blogger.com/profile/03057507938210279134noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-59621236009870750662017-02-02T13:41:41.361-06:002017-02-02T13:41:41.361-06:00There is a nice article by Daniel Mitchell from Ca...There is a nice article by Daniel Mitchell from Cato at the Foundation for Economic Education (FEE) about a study of the Australian corporate income tax. Apparently, the Australian Treasury undertook a study of cutting the corporate income tax, and, [get this], cutting government expenditure by a similar amount.<br /><br />https://fee.org/articles/the-australian-corporate-tax-experiment/?utm_medium=popular_widget<br /><br />Surprising what they found. You have to give it to the Aussies.<br />Mitchell's article is full of interesting links as well.<br /><br /><br /><br /><br />Manfred the mamoothhttps://www.blogger.com/profile/07516724901598949627noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-38616695143349325342017-02-02T13:05:46.109-06:002017-02-02T13:05:46.109-06:00Why not make it a full VAT but with revenue target...Why not make it a full VAT but with revenue target to replace both the corporate income tax and the SS-Medicare taxes on wages. Unknownhttps://www.blogger.com/profile/04661459590343267145noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-17116827164336017462017-02-02T13:02:13.891-06:002017-02-02T13:02:13.891-06:00John, Your statement about the 17.5% VAT seems im...John, Your statement about the 17.5% VAT seems implausible. I recall reading that the base of actual VATs is only about 40% of GDP. I'm not sure why, but I'd guess it excludes investment, government, education and housing services. Does anyone know?<br /><br />Otherwise I very much like both of your recent border tax posts.Scott Sumnerhttps://www.blogger.com/profile/15864819372390187247noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-32627066004657636532017-02-02T12:36:47.109-06:002017-02-02T12:36:47.109-06:00For all you Americans reading this I can confirm w...For all you Americans reading this I can confirm what Absalon's description of the GST/HST in Canada is excellent. I can only add that the tax is very simple to administer. The monthly return that I fill out for our company is still essentially a 1 page document. (Well, a page and a half. The exemptions and loopholes are growing. But slowly - at least for now.) Our accounting package automatically captures all GST charged to customers or paid to vendors. Basically I remit the (or get a refund) on the difference. <br /><br />I think the economic virtues of the tax are exactly why it is politically unpopular. You can't hide from it. It is hard to dodge it. I am afraid that people like loopholes. Maybe they think they are getting a deal. Maybe they think it is a game that they can "win". Despite all the John Cochrane's of the world telling them they can't. Anonymoushttps://www.blogger.com/profile/03031566374322809471noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-18828597571103562902017-02-02T10:38:35.137-06:002017-02-02T10:38:35.137-06:00The Manufacturers' Sales Tax was 13.5% (I thin...The Manufacturers' Sales Tax was 13.5% (I think levied on the factory gate price). It was a hidden tax so consumers did not see it.<br /><br />The GST was a "Goods and Services Tax" (hence GST) and was explicitly shown on the invoice. As a value added tax businesses collect GST, deduct the GST they have paid on purchases, and remit the difference to Canada Revenue. There are concerns expressed at the administrative cost of tracking all of the charges and credits. <br /><br />Overall the effect on consumer cost was probably a small increase but Canada's deficit was a problem and the cost increase represented additional revenue. <br /><br />I think there is a caution for American conservatives in Canada's experience. The intellectually inclined conservatives supported the tax and as a result became irrelevant to Canada's political scene from 1993 to 2003 (in 2003 the break away populists merged with the remnants of the Progressive Conservative Party). There were multiple factors that led to the PCs being crushed in 1993 but the GST was a big one. Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84070441402538230172017-02-01T23:17:01.459-06:002017-02-01T23:17:01.459-06:00Absalon,
Clearly the removal of the manufactured g...Absalon,<br />Clearly the removal of the manufactured goods tax mitigated, to some degree, the introduction of GST. What was the balance? i.e. what percentage each (GST=7%; MfgGds=?%)? And what was the net effect on (after tax) prices?<br />One would think that people's attitudes should be determined by the final price as long as they had the same old amount of money to spend. Of course populist propaganda often is much more powerful than reason.<br />--E5Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-52398619987729800622017-02-01T22:10:19.517-06:002017-02-01T22:10:19.517-06:00Absalon,
Thanks for the information It sounds lik...Absalon,<br /><br />Thanks for the information It sounds like what you are saying is that:<br /><br />1. It was, for the most, part an economic success<br />2. It was a disastrous political failure<br /><br />Talk about falling on your sword.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.com