Elasticity optimism for me but not for thee

How many who think we should subsidize manufacturing also think high corporate tax rates are harmless?

That is from Modeled Behavior.

Comments

I'm not sure what the first part refers to. Are there many people arguing that the government should subsidize manufacturing? Manufacturing of electric cars and solar panels, or in general?

yes... these people are known as Progressives in the U.S.

Progressives originated the American corporate income tax in 1894 and made it eternal in 1913.
They strongly embrace taxpayer subsidies to a limitless array of their favored activities/causes, including politically correct manufacturing... or at least properly insider-connected manufacturers.

Irrational, contradictory economic ideology is a hallmark of Progressives, though contemporary American Conservatives have approached comparable levels of cognitive dissonance. Societal power and control are the most important things to both groups.

Only Mdave is above the fray. Fighting for Principles, Freedom, Condescension and Fairness. He votes for [X].

Funny, most people would consider me a progressive, and I oppose subsidizing manufacturing and think we should cut corporate taxes. In fact, I know of literally no one who has said we should subsidize manufacturing in general (ok, maybe there's one exception: my Trump-supporting uncle).

Interestingly enough, Obama apparently also thinks corporate taxes are too high, since he's been pushing to cut them for his entire presidency: https://www.google.com/search?q=obama+corporate+tax+cut

"Pushing" is used rather loosely here. Revealed preferences, he had 2 years at the beginning to push through anything he wanted and didn't. He talks about it sure but is light on specifics on how or if he wants to cut them.

Fair enough, but he most assuredly did not have 2 years to push through anything he wanted. With Republicans filibustering literally everything in 2009, Democrats needed a supermajority to pass anything, which they only had for about 7 months. They got the supermajority in late June 2009, when Al Franken was sworn in after the lawsuit that delayed his admission, and lost it in early February 2010, when Scott Brown took the late Ted Kennedy's seat. https://en.wikipedia.org/wiki/111th_United_States_Congress

I don't know what you mean by light on specifics. It seems to be that he has be very specific. He proposed cutting the 35% rate to 28% and reducing the tax preference for debt financing. That seems fairly specific to me, no? Many more details are here: https://www.treasury.gov/resource-center/tax-policy/Documents/The-Presidents-Framework-for-Business-Tax-Reform-An-Update-04-04-2016.pdf

If you live in Michigan, all you hear is about how we need to subsidize manufacturing through various means. (Restrict trade, screw with currency, tax credits for using American labor) There is a deduction on the front of your tax return that is subsidizing manufacturing, the Domestic Production Activities Deduction.

Tariffs on manufactured goods = manufacturing subsidies

Corporate + dividend/capital gains tax rate should equal the max individual rate on high incomes or there is a loophole that can distort the economy more than subsidies.

"Corporate + dividend/capital gains tax rate should equal the max individual rate on high incomes"

That's not true in Canada, Germany, Australia or even most of Europe.

"there is a loophole that can distort the economy more than subsidies."

So, empirically, this statement is either wrong or the distortions are insignificant.

"So, empirically, this statement is either wrong or the distortions are insignificant."

Why do you say that? Without advocating for Joan's point, do we not live in a world where the distortions due to tax policy surrounding corporate earnings are large and bizarre? Apple is sitting on $200B in overseas cash. Firms are selling bonds so they don't have to repatriate money. The individual savings rate is negative. The vast majority of American stock ownership is locked up in tax-preferenced vehicles with byzantine rules because investing outside them is so disfavored.

I read Joan as saying "We should have this policy or there will be significant distortions." You can argue about the policy, but we certainly have the distortions.

"Why do you say that? Without advocating for Joan’s point, do we not live in a world where the distortions due to tax policy surrounding corporate earnings are large and bizarre? Apple is sitting on $200B in overseas cash."

I would argue that Apples $200 Billion is a sign that the US has a comparatively high corporate tax. You seem to be arguing that it's a sign that the US has too low a corporate tax.

I'm misunderstanding something. Apple's $200B overseas is a sign the US has too high a corporate tax. Joan's argument is that the corporate tax plus the taxes on investment are too high. They're much higher than the taxes on wage income.

Taxes on wage income are the loophole. Not that most people would argue that they are low, but they are low relative to the absurdly high taxes on corporate income and investment.

Now, I don't quite agree with Joan. Taxes on corporate income and investment should be zero, not equal to the income tax. But that's a different argument.

Very-high-earning professionals (think doctors and lawyers) have some tricks to change deferred income into capital gains, but it's not always easy and has risks.

Overall, though, I support significant reduction in the corporate tax (to something more in line with the rest of the world) while having dividends and capital gains being taxed more like normal income.

Sure, if you index the capital gains to inflation

I think those would be good trade offs and lead to a better tax code.

What about the oil and gas industry, should we continue the subsidies for that industry? Not only the direct subsidies, but the indirect subsidies for the externalities that somebody will have to pay someday. It's early in the morning for such a strong dose of hypocrisy. Of course, every government subsidy has its defender. Would America be what it is today if the government had not subsidized transportation (including trains (with massive land grants), the automobile (with highways and bridges), and shipping (with canals and levies)). And what about the higher education industry, which enjoys high salaries subsidized by government loans for students so they can afford the high tuition and government grants for research. Indeed, federal government subsidies for higher education exceed the total tuition paid to all public colleges and universities. As for corporate tax rates, I'm all for reform as long as its not used as a pretext for cutting or eliminating taxes on high income earners (i.e., to shift the tax burden down).

How does that compare with the subsidies to agriculture? Not to mention price supports, which makes our price of sugar 2X to 4X the world price and has driven most of our candy industry out of the country.

You would probably be in favor of putting a portrait of Henry Clay on the twenty dollar bill.

Lower the official corporate tax rate, increase the effective corporate tax rate.

Otherwise known as the Asian Full Employment Act.

Or just abolish the corporate tax & eliminate the unjust double taxation.

Or at least give corporations the right to vote if you insist on taxing them
(taxation without representation)

You sound like Reagan./Tip O'Neil in the 80s

What is the difference between marginal and effective rates of our biggest evilest corps, like Exxon and Walmart?

Let me tell ya, it's yuuuge. Research.

I would not think anybody espouses both positions, as they contradict each other, but I guess it's a trick question in that some progressives do?

Reading this excellent book on the importance of manufacturing, recommended: V. Smil, "Made In The USA" (2013) (he's an economist, and writes like a physicist, the book is a bit plodding at times but chock full of good facts).

I don't think anyone supports subsidy for all industry and increased taxation for all industry simultaneously.

That said, it is completely rational to espouse overall increases (or decreases) in taxation while simultaneously wanting your pet industry to get subsidies/tax breaks. This is the equivalent to supporting a reduction in corporate tax rates along with introducing a pigouvian tax on carbon emissions.

"I don’t think anyone supports subsidy for all industry and increased taxation for all industry simultaneously."

+1 Subsidy is a means to pick winners and taxation is a means to pick losers. It's about who's in favor and who isn't.

Agreed. It's all about giving your favorites a leg up while hitting those that you don't like as hard as possible. Tribal politics at its worst.

"Tribal politics"

Why on earth has the word "tribe" developed such a pejorative connotation? Nobody seems to have negative feelings about "family" and tribes are simply extended families, or, at the least, groups of people with similar interests and values, but not necessarily identical in every respect. Evidently statists embrace the nation/state's prohibition of any allegiance that might effectively compromise their hold on the population. People are inclined to form tribes, however, that differentiate themselves from others. That's the attraction of professional sports teams, whose tribal affinities are no threat to the government and, in fact, are encouraged by it for that very reason. Go Giants!

@chuck: you might ask people in the Middle East why tribes can be problematic.

What;s "problematic" about tribes in the Middle East? Isn't most of the confrontation actually between Islamic sects? No doubt there are also disagreements between tribal factions over turf and power but that's common in any larger society.

chuck,

Why in the world do people not want our culture to devolve into warring tribes at each other's throats to take each others' resources so they can succeed at the others' expense? I can't imagine why anyone would frown on that.

Isn't Boston doing just that with Uber?

Jay, Boston is doing exactly as you describe. They slapped a 20 cent per ride tax on ride sharing service and sprinkled the money around to a bunch of special interests. I generally like Charlie Baker but on this one he's completely in the wrong.

"Republican Gov. Charlie Baker recently signed into law a tax plan for transportation network companies (TNCs) like Uber and Lyft to help subsidize taxi and livery programs. As reported by Boston.com, TNCs will be required to pony up 20 cents per ride, a fee that cannot be passed along to drivers or passengers.

A dime from each trip will be given to cities and towns for local transportation needs, while five cents goes to a statewide transportation fund. The final nickel, meanwhile, will provide financial assistance to cab companies."

http://www.pcmag.com/news/347213/massachusetts-to-tax-ride-hailing-apps-like-uber-lyft

"...TNCs will be required to pony up 20 cents per ride, a fee that cannot be passed along to drivers or passengers."

LOL! Apparently the fee will be paid from Fairy Dust and Unicorn tears.

You know, anyone who says that simply hasn't studied certain concepts. They are not difficult to introduce by name if you wanted to.

Right, this will maximise the efficiency of our transfers to the virtuous manufacturers!

Make coal great again!

You tax what you want less of and do not tax that which you want to flourish. Taxing business reduces jobs and increases costs to the consumer. We would be better off with a zero tax on business.

What would you tax instead? A high VAT?

Also, theoretically speaking there is merit to your point.

But consider that it should be desirable for the state to have a direct interest in the growth in income and profits of individuals and corporations. Not through pork and corruption, but through the ability to increase the tax base. This is common reasoning about why resource-rich economies do not do well over time. In addition to Dutch Disease, there's the issue of dictators being able to siphon off their billions regardless, without having to do anything to build up the capacity of the population.

Also, when people and companies pay income taxes, they will have a stronger feeling that they should have inputs into political processes. As much as this can be complicated at times, it may lead to mechanisms for high quality debate enroute to good policy.

So far only one commentor gets the point.... I guess we do teach something non-obvious in Econ 101. I'll use this example in class.

That's right, what's there to learn after Econ 101. This reminds me of my foreign tax class in law school. A student, who had taken both Econ 101 and Tax 101, asked the professor if a U.S. corporation could avoid U.S. tax by transferring a patent to a controlled foreign corporation incorporated in a tax haven and then putting the patent in a file drawer in the tax haven and allocating lots of income to the patent. Everyone got a good laugh with that one.

And then your professor explained how Section 367 and Subpart F worked?

LL (if you know anything about foreign tax you recognize the initials) explained that 367 and sub-part F were intended to prevent allocations that had no substance (much like the consolidated return regulations). But this was in the dark ages (1970s), before anyone understood that tax evasion is patriotic, before the tax evaders appeared before Congress as conquering heroes by one political party.

Insert "No True Scotsman" here, according to some of the truly laughable comments above.

I don't know, how many? *eagerly awaits punch line*

I also like to use minimum wage and summer job programs (subsidies) as example like this.

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