There’s a bit of a boomlet in counter-intuitive liberal assaults on the corporate income tax.
Bob Reich, amplified by Markos on Daily Kos, suggests we ditch the CIT and increase other taxes we like (on capital gains or stock transactions). My friend and brother from another mother Dean Baker has a baffling column on how eliminating the CIT would somehow cripple the tax avoidance industry. For a counter-argument, see Jared Bernstein. For the Slatepitch approach, see Matthew Yglesias.
While there is empirical research to support the premise that at least some of the CIT is borne by workers, 1) that isn’t the worst incidence one could imagine (consumers would be worse); and 2) that still leaves some of the burden on capital. (There is no evidence, none, contrary to Reich, that the tax is borne by consumers.) That hardly provides a good reason to pee on an existing revenue source in favor of politically dubious alternatives, especially now. Repeal of the CIT is likely to lose revenue, on net.
Economists have been disagreeing on the incidence of the CIT (who bears the burden) forever. As the paper I link to shows, by the formidable Jennifer Gravelle of the Congressional Budget Office, it’s not easy to pin down. Ergo confident assertions of this or that are dubious on their face. First do no harm is a good principle to restrain repeal proposals.
Reich also supposes there is some secret sauce in eliminating the CIT effect on domestic production. Notable in BR’s blurb is the utter lack of empirical evidence. It is an argument based on pure logic, notwithstanding there are counter-arguments that are equally logical.
One ought to recall the late 90s when no such tax relief was required to observe remarkable gains in employment and wages. (Didn’t somebody write a book about that?) This unfortunately dovetails with Obama Administration’s cockamamie plans to doodle the CIT and somehow incentivize domestic manufacturing.
Then Dean weighs in suggesting that eliminating the CIT will cripple tax avoidance. Well sure that is one way to eliminate tax avoidance; eliminate a tax. But untaxed corporations will gain value as tax shelters and spawn tax planning aimed at extracting cash from corporations at reduced or no tax rates. Increased dividends to the rich will stimulate their own use of tax planning. The same for increased capital gains. Capital gains taxation is the Disneyland of tax avoidance. And then, as Dean acknowledges, there is also the possibility of individuals erecting personal corporations to shelter income, which possibility Dean imagines can be easily precluded.
It’s all about aggregate demand, folks. The only tax reform worth discussing is one that would increase revenue, once the economy gets back to full employment. In the meantime we need higher deficit spending and Janet Yellen sitting on interest rates. All the rest is noise.