I agree completely with the author's first point about the true economic incidence of corporate taxes. However, I'm not so sure about his second point or larger argument...
We do double tax the income that comes through corporations. Let's say the tax rate on a corporation is 50% and personal taxes are 25%. Let's say that all money is taxed at the corporation before moving on to people where it is taxed at the personal level. Then, we'll tax 62.5% of income. Eliminate the corporate tax (or provide tax breaks) and we're only taking in 25%, which means taxes need to go up on same people. Say the corporate rate is 10% and personal 90%. Together, we're taxing 91% of income, without the corporate tax, only 90%. I know this is a simplification, but no matter what, it seems like taking away the corporate tax reduces revenue.
Of course, there could be some kind of laffer curve effect or maybe less revenue will lead to less spending so taxes don't need to go up, but these are more controversial conservative arguments than obvious truths. Also, it may be well worth it to reduce or eliminate the corporate tax and raise other taxes. I'm just not convinced we can do it for free.
I think, and maybe I'm analyzing the author's argument wrong, but claiming that reducing taxes on certain groups increases the taxes on all others is inherently false. If a group is given tax breaks it doesn't mean that the tax rates on all other groups will suddenly rise. Instead, it means that these other groups may pay a higher burden of a tax. This is a rhetoric issue, and it seems to be entirely political. Instead of claiming "look at the tax breaks corporations are getting, everyone else must pay more," it should be "reducing corporate tax rates eliminates a much-needed revenue source for our economy." The difference is not taking an accusatory stance (you are hurting the rest of us) and instead explaining why what tax revenue is used for, whether through a sustained corporate tax or higher taxes elsewhere.
This is one of the main ways in which my thinking about taxes has changed throughout this course. I didn't understand until this course the theoretical reason that only people pay taxes, and that the way in which taxing corporations essentially affects the salary of shareholders and executives (possibly lower level employees as well), rather than the corporation as an entity.
I agree completely with the author's first point about the true economic incidence of corporate taxes. However, I'm not so sure about his second point or larger argument...
ReplyDeleteWe do double tax the income that comes through corporations. Let's say the tax rate on a corporation is 50% and personal taxes are 25%. Let's say that all money is taxed at the corporation before moving on to people where it is taxed at the personal level. Then, we'll tax 62.5% of income. Eliminate the corporate tax (or provide tax breaks) and we're only taking in 25%, which means taxes need to go up on same people. Say the corporate rate is 10% and personal 90%. Together, we're taxing 91% of income, without the corporate tax, only 90%. I know this is a simplification, but no matter what, it seems like taking away the corporate tax reduces revenue.
Of course, there could be some kind of laffer curve effect or maybe less revenue will lead to less spending so taxes don't need to go up, but these are more controversial conservative arguments than obvious truths. Also, it may be well worth it to reduce or eliminate the corporate tax and raise other taxes. I'm just not convinced we can do it for free.
I think, and maybe I'm analyzing the author's argument wrong, but claiming that reducing taxes on certain groups increases the taxes on all others is inherently false. If a group is given tax breaks it doesn't mean that the tax rates on all other groups will suddenly rise. Instead, it means that these other groups may pay a higher burden of a tax. This is a rhetoric issue, and it seems to be entirely political. Instead of claiming "look at the tax breaks corporations are getting, everyone else must pay more," it should be "reducing corporate tax rates eliminates a much-needed revenue source for our economy." The difference is not taking an accusatory stance (you are hurting the rest of us) and instead explaining why what tax revenue is used for, whether through a sustained corporate tax or higher taxes elsewhere.
ReplyDeleteThis is one of the main ways in which my thinking about taxes has changed throughout this course. I didn't understand until this course the theoretical reason that only people pay taxes, and that the way in which taxing corporations essentially affects the salary of shareholders and executives (possibly lower level employees as well), rather than the corporation as an entity.
ReplyDelete