What about Trump’s plan to cut the corporate tax rate?

That is the topic of my latest Bloomberg column, and here is one part of my argument:

This argument for a corporate tax cut — “let’s borrow more now while rates are relatively low” — is remarkably like the argument that Keynesians have been using for more government infrastructure spending for years. The main difference is that here the spending would be done by private corporations rather than the federal government. You may or may not believe the private expenditures will be more socially valuable than the government expenditures, but if you think we can afford one kind of stimulus we probably can afford the other. And as I said, the private rate of return on investment probably is higher than the government’s borrowing rate, even if you think that government spending would yield higher returns yet.

Of course that argument does not require unemployed resources.  On the micro side, I find it amusing when people suggest that the rate of return on government infrastructure is high, but that corporations have nothing better to do than to sit on their cash.  It is hard to have it both ways!  Imagine arguing that biomedical R&D through the NIH yields high returns, but that pharma investment to commercialize the resulting drugs or devices does not.  National parks aside, most government investment is in inputs, and thus for it to have a high marginal rate of return someone on the output side has to have a high marginal rate of return as well.

Here is another part of my argument:

The pessimist might wonder whether companies would take their windfall and invest it at all. Many companies might simply hold the gain in money management accounts. In this scenario, the tax plan probably won’t be worth passing, as American companies would have nothing useful to do with the free resources, even when given a nudge to invest. That should induce a fairly panicky response, including radical deregulation of business and fiscal austerity on entitlements, but I don’t see critics of the tax plan following up on this view consistently.

There is much more at the link, and do note my rather significant caveats on the plan.  And here is Kevin Williamson on the plan.


On the issue of incidence and distribution, we often hear that a sales or consumption tax is regressive because lower income folks consume a larger portion of their income. But, regardless of statutory incidence, the economic incidence of a sales tax is the same whether "consumers pay" it or firms pay it. Prices adjust so that economic incidence is unchanged. Corporate income tax is levied on sales (revenue) minus expenses. Again, economic incidence shouldn't depend on whether "firms pay" or "customers pay" the tax. Is there any reason why taxing sales minus expenses will be any more or less regressive than taxing sales? If not, then wouldn't the economic incidence of a corporate tax cut fall disproportionately on low-income consumers just as much as a sales tax cut would?

Keep in mind that one firm's expenses are typically another firm's (supplier's) revenues, except for labor expenses. So, by the time an end product reaches the consumer, it will have had corporate taxes levied on it at every step in the production process. Then, is the corporate tax like a sales tax but levied only on the non-labor portion of the product's price?

Sales taxes are not paid on intermediate goods and services. Ie, a business pays no sales tax on office supplies at Staples while an individual does in most places.

And a VAT is a sales tax where the firm computes the tax on all revenue in a locale and subtracts all VAT paid for inputs produce it. Ie, again, business does not pay it. When goods move across tax borders, the tax due is zero and all tax paid is rebated. And then immediately levied again, except going into the US.

If the firm that buys office supplies from Staples is in the business of reselling those supplies then Staples won't charge sales tax.

If you need ink toner and paper for your software consulting firm, then Staples will charge the sales tax.

Of course it depends on the peculiar structure of the VAT, but in Canada businesses don't pay value added taxes. When I buy something from Staples, I pay the GST, and that amount becomes a credit which I subtract from the GST I collect from my customers. The consumer ends up paying the GST that the government collects.

It is very unpopular. The Liberals ran against the Progressive Conservatives in the 90's promising to get rid of the GST. They didn't of course. In BC we had a tax revolt when the provincial sales tax, a straight percentage of sales, was harmonized with the GST, making a 12% HST. It was great for business; we didn't pay any. The voters disagreed in a referendum.

However it's a valid business expense so it is not taxed by the corporate income tax, which is only levied on profit. Individuals do not have that exclusion except for business expenses on self-employment income.

The argument that sales taxes are regressive is based on only looking at people’s income in a given year. Things change if you look at income and spending over a person’s life. If you assume people spend all their incomes within their live time, a proportion sales tax is the same as a proportional income tax (but with different timing). A proportional consumption tax that exempts items like food and rent, actually becomes progressive.

Things are a bit more complicated if you assume people leave money for the next generations but depending on how you tax the transfers, the basic result still holds.

Besides it is what money can buy that makes people better off, not the money itself.

"Things are a bit more complicated if you assume people leave money for the next generations but depending on how you tax the transfers, the basic result still holds."

That's a rather large caveat; we know lots of wealthy people leave money to heirs and this money can last across multiple generations. Another problem with consumption taxes is they cannot reach overseas consumption. Consumption taxes are fine but they cannot replace income taxes, property taxes, and inheritance taxes if you want to make sure the tax system reaches the super-rich.

In the US possibly so. In Britain consumption taxes would helpfully impinge on tax-dodgers, tourists and non-dom residents, people whom Her Majesty's Government ought to be delighted to tax.

You know that we have 20% VAT right?
When I lived in Florida, my friends flat out refused to believe it. Their answer was "Even the Mafia asks for less!"

But not if you spend the money overseas. If I take my hard-earned money and use it to pay for my holiday in Greece, I'll pay the prevailing VAT rate in Greece, which all the Greek shopkeepers and bartenders assure me is 0%.

In Europe we also get into fun, multi-jurisdiction situations. Given that VAT is different by country, on a large enough purchase, I can do tax shopping and go buy in a place with a lower rate: Heck, I can do that in the US, where there are a couple dozen different local sales taxes in different municipalities nearby, and I can save 1% by going to the right one.

Andrew M. I've been in Athens for the last seventy or so days, an all the receipts I get say the VAT is 24%. It is built into the final price, but if you check your receipts, you will find it.

Based on incidence arguments,

The economic incidence of our corporate tax system,

Since we have worldwide tax on corporate income,

Is that

We tax foreigners.

Is that Haiku?

It is haiku

Only in the

Bayou of

Oahu or


Burma Shave.

Consumers don't have a professional accounting team behind every decision, so probably they are more liable to be manipulated slightly by misleading prices, by virtue of not posting a price inclusive of VAT, but instead charging the VAT after the tax price.

So probably consumers face a slightly higher share of the tax when it is added on top of the posted price (paid by consumer?) rather than included in the posted price (paid by seller?).

For similar reasons to why money is not neutral in ways that enable monetary policy to have their effects.

Probably the difference is not huge though.

Fewer than 5% of US businesses and less than half of the business income is taxed as a corporations, so the rate changes in those taxed as pass throughs matters even more. The proposed max rate of 15% for pass throughs will produce a rush on the part of corporation to change their structure to Pass throughs since they are not subject to double taxation. Most of the restrictions on who could be a pass through have been removed, they can even be publicly traded now. Unlike a corporation that has a tax incentive to retain earning and invest, pass through business are neutral between savings and consumption, and the increase in consumption as fraction of GDP since they became popular is an indication that rich Americans will prefered more consumption when rates were lowered.

Arguments on double taxation hit a wall during the Bush administration when there was a proposal that shareholders could deduct the amount of corporate taxes paid in the distribution of dividends passed on to them.

The problem was that many companies, such as GE, had no taxes which would be deducted, VP Cheney found out when he made this proposal.

Really? I guess you see little difference to reducing the rate. Good.

No, because GE and others have their incomes parked in foreign tax havens. Part of the proposal is to tax foreign repatriation at a 10% rate, so they are still better off.

I am in favor of Cheney's proposal, but apparently he is not.


For your edification and reading enjoyment re international tax regimes and avoidance: https://www.nytimes.com/2017/04/26/business/economy/trump-tax-plan-repatriation.html?ref=business

I've long thought that during this era of historically low interest rates, the government should borrow all it can so it can lock them in. I mentioned this to someone, who told me that the low interest rates are only for short-term debt. What is the term of the average government debt? What would the interest be on, say, a 20-year bond? Surely, we'll see inflation come back at some point. If we can lock in a low rate and then pay it off with inflated dollars, we could make a killing. Heck, why not do this deliberately -- sell bonds, inflate the currency, buy the bonds back, deflate the currency.

I've thought about a related scheme, probably only suitable for a small- or middle-size nation in a hot area, like Pakistan or pre-war Saddam Hussein's Iraq. Invest heavily in gold, mass your army at the border with India, Kuwait, or wherever, sell the gold, then demobilize. Repeat every year until people catch on and it stops working. If you were planning to invade anyway, that will be the time to do it. It will be a total surprise.

Maybe, instead of listening to a friend, you could check the actual source data here - https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

As of 04/26/17, the yield for a 20 year bond is 2.69%

An explanation from that site - 'These rates are commonly referred to as "Constant Maturity Treasury" rates, or CMTs. Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The yield values are read from the yield curve at fixed maturities, currently 1, 3 and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.'

Surely, we’ll see inflation come back at some point. If we can lock in a low rate and then pay it off with inflated dollars, we could make a killing.

Sure "we" could make a killing. But who, precisely, gets killed?

Hopefully the Boomers, who caused most of our problems.

I am a Boomer and I deny that I caused any of your problems. And I resent the
idea that you want me dead.

Right you are: every generation degenerates from the one before, an idea that goes back to Socrates (Gold, Silver, Bronze ages). So the Greatest Generation > Boomers > Millennials > whatever they call today's kids. Biologically, it's also true (population has degenerated over time, due to dietary and possibly genetic factors, better interracial breeding would solve the latter 'challenge').

A) ray you are missing "gen X" in there. Clearly the greatest generation.

B) it is clear, at all, that the change to breeding patterns you suggest you sole the genetic ills you propose. Crisper, OTOH has the potential to"fix" any and all ills real and perceived.

The Silent Generation was the smartest, best and highest-achieving. Boomers were given everything and will destroy it just in time for their kids to inherit their failure.

'but if you think we can afford one kind of stimulus we probably can afford the other'

The idea of not being in debt is just too foreign for Americans too consider anymore, isn't it?

'but that corporations have nothing better to do than to sit on their cash'

Well, if a corporation can get the government to hand its hundreds of millions in subsidies to locate a plant in a municipality, why should a corporation pay their own money to do so? And it isn't as if those corporate bonuses/retirement packages to top management aren't the best use of cash that top management can imagine, after all.

Circa 1970, Milton Friedman argued the 50% tax rate led to hiring too many workers, building too many assets with labor (directly and indirectly) because the IRS paid half and in liberal States it's tax collector will pay more. He argued the result was labor cost inflation from excess labor demand.

Worse, individually subject to 70% tax rates invested in partnerships that threw off huge operating losses in startup phases because the IRS paid for 70% of the losses, which were often borrowed. As the losses ceased after 5 years, the partnership would sell its assets written down by the accumulated losses for 20% capital gains, so so a return of 70% on investment, ie a big loss, was profitable after taxes. Again, too many workers paid, but doing inefficient production, but driving up wages. The most common partnership was for wildcatting leading to too much US oil production, too few imports, and oil prices inefficiently low at nominal $3 but one-half the $3 price in 1945.

The Trump tax plan rewards slashing labor costs. For every million in labor costs killed, you pocket a minimum of $850,000 in after tax profits. Except, because hiring workers costs so much, investments in new assets get refundable tax credits of say 30% of revenue that go to pay the high labor costs of building stuff. Sure, Trump eliminates those tax incentives, but only for a few years until it's clear from industry plans that huge job losses are coming or have happened to boost after tax profits to even higher record levels.

Why does Microsoft charge so much for software when it's profits are so high? Taxes rates are so low that paying workers to produce so many more software products they must sell so they must cut software prices to create demand, is bad business, so out buying back shares of its stock or buying old assets, both not tax deductible, costs so little in taxes that growing the monopoly to keep prices far above labor costs makes the most sense. After all, the penalty for not paying workers is so low since tax reform in 1986 with amendments since.

In the 70s and early 80s, I remember being told we needed to buy new capital assets that can be immediately expensed, or we needed to throw as many bodies at a client as possible before an immediate write off of capital investment ended so the we or our client could cut taxes owed by a lot. That exercise pretty much ended in the late 80s and didn't happen in the 90s.

Installing new equipment to comply with government regulations got a go ahead. For example, switching from paper records sent to the IRS to digital tapes was an initial investment but as soon as sending it over the wire became an option, old computers with zero networking capability got replaced with complete redesign of the system in a nose under the tent mission creep. The 90s were a boom in system sales and consulting, and given the spending was to comply with regulations, most of it was expensed. Add in Y2K which was required in 10K SEC filings. Those were why computer automation failed to cut costs in the 90s. In 2001, everything switched to boosting profits from not paying workers. Not paying workers was not punished with high taxes like it had been in the 60s, the last period when workers were getting zahead.

"I find it amusing when people suggest that the rate of return on government infrastructure is high, but that corporations have nothing better to do than to sit on their cash. It is hard to have it both ways! "

Eh? I can easily imagine an economy with a relative lack of private investment opportunities, while simultaneously having public investment opportunities worth hundreds of billions of dollars, e.g. to reinforce bridges before they collapse, build new schools or provide more aid to students, improve public transit or the railway system, or even just fix the dozens of potholes I encounter each morning driving to work. Private investors aren't going to do any of those projects, but the social return on investment can be high.

The railway system is not owned by the government. Transit can be privatized.

The rail right of way is a public asset in nearly all cases. 99% was granted to railroads by governments at no cost, and often with cash and land as incentives if rail lines were built.

Rail lines have been abandoned for reasons that would justifying abandoning 50% of roads in the US: costs in excess of revenue generated.

And that has been a significant factor in rust belt deindustrialization.

Give Uber 20 years , public transit may no longer exist.

None of this does anything with a lack of private investment. Roads don't generate wealth: they enable wealth generating commerce. Believing road construction is a good investment automatically means you think there is good private investment too.

Certainly there are cases where the government must have all resources, like WW2, but that does not mean private investment opportunities do not exist

" Believing road construction is a good investment automatically means you think there is good private investment too."

What if there is no good private investment opportunities because there aren't enough roads?

It seems obvious that investing in private goods (a better trained workforce, transportation/information/energy infrastructure, etc.) could create opportunities for private investment where heretofore none existed.

Your mean like not building lots of new housing? Why don't home builders build new highways to vacant land to open up 10,000 home tracts to flood the excessively high priced housing market? A billion dollars of private money for roads water and sewer will easily be recovered in sales of ten thousand new homes with 50% mark ups because real estate prices never go down!!!

After all, it was real estate developers who built the Interstate highways and water and sewer in the 50s and 60s to open up land for Levittowns to transform housing and create the middle class. And the housing developers built really great private schools back in the 50s and 60s, too!!!

Totally different than today where real estate developers must pay high taxes and fees to government so it will build roads, water and sewer, and government schools. Let's go back to the 60s!! Taxes low and no government central planners laying out investments in infrastructure.... Before Reagan hiked taxes and created big government central planners controlling the entire economy.

"Roads don’t generate wealth"

That's precisely my point, and the point that Tyler misses. There are plenty of investments such as roads that don't generate wealth (and therefore no private investor will undertake them) but that provide substantial social returns and therefore ought to be undertaken. Some roads (not including private roads where some property owner clearly does have the incentive to build the road themselves), schools, bridges that don't fall down, public health monitoring of the dangers of the Zika virus, maybe another aircraft carrier though most would say we don't need another one, etc. Maybe even a wall, for those who think that the country would benefit from it.

Just because the private investment opportunities have dried up doesn't mean that there are no decent public investment opportunities.

The savings glut idea. If there's already lots of cash available for investment, why would a bit more cash available to business make a difference?

They can buy back shares faster to get a corporation back to a single share holder. I think Microsoft was mentioned as having 25% fewer publicly owned shares than a decade ago.

But investments by a growing corporation are not be taxed, so tax cuts do not increase investments. Eg, Amazon and Tesla do not pay taxes because they invest so much more every year that depreciation expense added to operating expenses heavily devoted to growth wipes out all profits for tax purposes.

I would prefer payroll tax cuts, but okay, Trump proposed corporate income tax cuts and some personal tax cuts.

Most analysts say the Trump tax cuts will boost federal deficits and the national debt.

Here is the question: Does federal debt matter?

The Bank of Japan is buying back the Japanese national debt, and has no inflation. Soon the BoJ will own the Japanese national debt. The Japanese government will owe the money to itself (or taxpayers to themselves). I call it Mobius-strip economics.

The Fed bought $3 trillion or so in Treasuries in its recent QE program, and has been below inflation targets ever since.

Okay, so Trump adds $5 trillion to the national debt. And in next recession, the Fed buys it back.

I am not describing a theory. I am describing what has happened recently in the U.S. and is happening in Japan.For now, the reality is that central bank liquidation of national debt does not incur inflation.

I realize, “That may be true in fact, but more importantly, is it true in theory?” is the orthodox macroeconomic framework.

But seriously, do national government debts matter anymore?

The most amazing thing about deficits now is the way supposed foes rolled over. For years they were told that "Republicans expand debt," and they really did declare every past Republican administration "RINO." They really did promise that next time would be different.

Only to act now like more deficit and debt were the plan all along, because everyone knew.

Who should trust a Party without principle?

Nobody should trust any party.

We should demand principle, even if we get something less.

The alternative is "nothing matters anymore" Trumpism.

(Tyler's argument is fairly nothing matters anymore.)

To be fair, with respect to the GWB cuts, starve the beast basically worked: most were made permanent and reduced revenue limited room for government growth under Obama (transient recession and war spending, and ACA-paid-by-new-taxes excluded).

The rhetoric is somewhat dishonest but the results are ultimately in line with GOP goals (small government, low taxes on the rich).

Much more dishonest, IMO, to wring your hands over out-year entitlement spending to justify pension reductions in a country that spends twice as much on public healthcare with nothing to show for it.

Well, study polls of satisfaction with government, with Congress in those years. In 2004 you might have been justified in thinking something north of 45% approval was a baseline. Ten years later 20% approval was a new normal.


The people seem to understand the difference between starved dysfunction and effective government.

Again, don't discount that dissatisfaction with Congress when considering the rise of Trumpism.

When Republicans "got what they wanted" and were hated for it, even by their own ranks, they were set up for some kind of end game.

The end game was that party loyalty remained, but all policies were thrown out. "Nothing matters anymore."

The end game was a gibberish presidency.


At the extreme, it definitely matters if the government uses the central bank to spend for consumption, like Venezuela and Zimbabwe with their hyperinflation. One could be forgiven for thinking it doesn't matter, as long as the governments continues to pay the debt to the central banks the USA and Japan are not going to experience significant problems, but as in those other countries if the debt growth outpaces inflation and economic growth, pressure will build on the national governments budget until something has to break. But the government is not powerless, they can balance the budget by raising revenues, decreasing expenses or the central bank can create moderate amounts of inflation to keep the debt reasonable (we don't have to go full Zimbabwe, never go full Zimbabwe).

Apparently investors believe that the USA and Japan will keep things under control for the foreseeable future. I'd agree with them for now and expect the governments to muddle through for decades.

"I would prefer payroll tax cuts, but okay"

You want to provide housing for your parents and grandparents instead of government paying for their housing and food in their old age, and buying private disability and death insurance in your 20s and 30s to support your young family for 15-20 years if you can't provide labor income for your family?

I'm old enough to remember families with before Social Security parents and grandparents, and the next generation where parents and kids looked forward to being independent of each other, free to move independently across country without fear the other would end up in poverty. The families of the 50s became rarer and rarer in the 60s and 70s. By the 80s, few even imagined households with 3 to 4 generations crammed in to one house, or even into one rental unit. Except for the Mexicans and Chinese (from Korea, Vietnam ;-)).

The same argument would apply to the DBCFT, except you'd probably get a larger investment response as effective marginal tax rates would be lowered further.

As the moneyed interests get more and more power over an atomized populace, the internal contradictions of the American regime are laid bare for all people see.

I thought these were two strange sentences to pair together:

"In this scenario, the tax plan probably won’t be worth passing, as American companies would have nothing useful to do with the free resources, even when given a nudge to invest. That should induce a fairly panicky response, including radical deregulation of business and fiscal austerity on entitlements, but I don’t see critics of the tax plan following up on this view consistently."

The idea is that if you, the critic outside of government and Congressional majority, do not like this plan you should "panic" and do something very specifically else.

As if you are in power, and those are your only two choices.

Below is a paragraph from Tyler's article late last year questioning Trump's infrastructure plan, titled "The Trouble With Trump's Infrastructure Plan." If one had concerns with a Trump infrastructure plan, then if one is consistent he must also have problems with this current tax plan that would similarly blow up the deficit (trillions by initial estimates) by boosting an economy that is already at near full employment and has robust GDP growth. It's curious.

"In Keynesian theory, fiscal policy only works well if you use it in down times and pay off the bill during a boom. Trump seems ready to do the opposite by upping spending as the economy approaches full employment. After that? Recent history suggests that many countries switch back to austerity precisely when they shouldn’t. That is a reality proponents of “spend more now” have to reckon with, and it means stimulus can bring a bigger contraction in the future than the boost it gives today."

"In desperate situations, it is indeed prudent to emphasize the short run, but that is not obviously the case in 2016, when we are nearing full employment and last quarter’s GDP growth was estimated at a respectable 2.9 percent."


No man differs more from another than he does from himself on a different day.

>"No man differs more from another than he does from himself on a different day."

That will be on Krugman's tombstone.

Pretty sure he's trolling liberal economists who said we could afford massive stimulus when a Democrat was in charge, but now that a Republican is in charge we are near imminent collapse and need to raise taxes immediately (but don't you dare even talk about cutting spending).


The problem with your comment is that unemployment was high in one period--requiring stimulus--and low in another period.

But, of course, you knew this.

That's a red herring. The question is: are Trump's tax cuts are affordable. As we know from years of our left-leaning economist friends, such a question is stupid: we can afford infinite amounts of debt and can never default since we print the currency we denominate our funds in.

Also, as Tyler said, the present unemployment rate is irrelevant. The investments are still positive-value even if unemployment is 0%, because government debt is so low.

Actual left-leaning economists should have the intellectual integrity to maintain consistency in these arguments.

One who throws out the phrase "red herring" chooses not to answer the question or recognize that how you look at deficits depends on where you are in the business cycle.

Stimulus is one time and relatively limited temporally. Tax cuts are intended to be permanent. Even when time limited they typically get extended, often permanently. I think this is an obvious and very significant difference.

Everything you say is wrong.

People who accuse others intellectual dishonesty ought to understand the arguments they criticize. You don't

yeah, endless clowning. Surprised he didn't say 'commies' or libtards.

"Let me head off one possible misconception. It's not possible to do fiscal stimulus in both good times and bad. There is a long run budget constraint. Years when the national debt is rising as a share of GDP need to be offset by years where the national debt is falling as a share of GDP. If the fiscal policymakers do more stimulus at a time when unemployment is 4.8%, they will not be able to do as much the next time it is 8% or 10%."


I get that general point. But does that mean we should do less or perhaps no investment in desperately needed infrastructure when interest rates are extremely low so that we can instead reduce tax income, all in an otherwise very healthy economy?

"desperately needed"

I think the difference between stimulus and investment is that the second has a higher requirement for return on investment.

Oh, I am quite certain he is. But my read is that Tyler is also not consistent. Sometimes hard to tell when everything is so caveated.

It literally is different if you give a trillion dollars to billionaires and if you give a trillion dollars towards human capital and infrastructure.

The second of these will make it easier for the billionaires to make money, without just giving it to them (which, yes, a comparatively high share would go into categories listed on accounting and tax lines as "investment" or "R&D" as opposed to education, which does not). (Paying teachers in Georgia more than a poverty wage for a family of four might not hurt for such human capital accumulation - I'm not sure how tax cuts for Trump's billionaires club will help with that aspect of things.)

Businesses earn higher profits when labour has higher human capital and when infrastructure lowers business costs.

Voodoo economics from the Left doesn't sound any better than Voodoo Economics from the Right. Some infrastructure spending (Erie Canal) is good. Some infrastructure spending (Transcontinental Railroads) are a boondoggle. Some education spending is value-add. But the recent Western experience suggests more spending will produce no miracles and is mostly just a virtue-signaling waste.

Also question. Who do you think is going to land a man on Mars first? Elon Musk or NASA?

Elon Musk paid by NASA?

Good comments, except your example of a boondoggle is silly.

Building roads, bridges and rail lines to connect markets within a nation is "virtue signalling".


So the question is this: who's going to make better use of the money, the billionaires or the working class? And duh, if the working class becomes worth more, the billionaires will have to pay them what they are worth while further multiplying their wealth, ideally by creating value.

Haha, yes. Coast to coast rail lines were a boondoggle and have done nothing for this country.


Use of the phrase "virtue-signaling" is a sure sign you have no substantive argument but are simply ascribing bad motives to others.

Yes, exactly, more clowning. I sometimes think guys like this are Tyler sock puppets.

Everyone, a moment of silence for


For those not alive in 2013, that was when debt mattered. Those where the days when $5 trillion in addition debt were not glibly accepted as the logical outcome of a conservative government.

You need to go back to the George W Bush days to learn that blowing up the deficit and increasing national debt is a deep held conservative principle, when in power.

And don't forget Senator Obama saying increasing the debt ceiling was reckless when President Obama said it was wise and prudent.

If anyone is surprised by either this fact or Anonymous's, I don't know what to say to help you. No one makes consistent arguments.

Tell me the situation when Senator Obama spoke, Great Recession? Mild recession? Mild expansion?

It is supposed to matter.

(In 2009, many said "we reject Keynesianism and your stimulus." Now in 2017, a few are willing to say "we reject Keynesianism and so we can do stimulus whenever we want.")

The government has "borrowed" (stolen) almost $3 trillion from the social security trust fund, spending it on everything from wars in the middle east to farm subsidies, a nice way of offsetting income tax cuts at the upper end and shifting the tax burden to those with low to middle incomes (who pay the payroll tax that generates the trust fund). It was part of the plan to "save" social security, passed during the Reagan administration with support from Democrats (who got it passed in the House) and Republicans (who got it passed in the Senate). Of course, it was a massive fraud. With each income tax cut for corporations and those at the upper end it becomes indisputable that the amounts "borrowed" will never be repaid. Indeed, Senator McConnell has stated many times that if it were up to him the amounts "borrowed" would simply be forgiven and never repaid. Cowen treats tax cuts for corporations and those at the upper end as magic dust, somehow creating the dynamism that he says is lacking due to "complacency". The tax cuts may be "magic dust", but not in the way he intends. Instead, they create the same circumstances that caused the financial crisis in 2007-08. It's the added risk of another financial crisis that is the "magic dust", plummeting asset prices destroying massive amounts of capital and taking inequality down with asset prices. The Great Reset Cowen predicts in his book.

Monetary offset, anyone?

Yup. Trump can blow up the deficit if he wants to but if inflation returns the Fed will jack up rates.

There are still a lot of inflation hawks who want to "normalize" interest rates. A wage/price spiral caused by a massive fiscal stimulus will be the excused used to drive the Fed funds rate back up to "normal" levels.

There is theory and then there is reality. Giving business tax windfalls has been tried and it didn't work. They don't invest to create jobs. They could and then we might see the posited economic spinoff, but they didn't before and they probably won't this time either. Targeted government infrastructure investment will usually take place once appropriated for. You can't say the same for business giveaways.

This type of objective thinking is needed. Contra-the subjective and partisan economists in the popular media (e.g. the linked Twitter pop-economist Justin Wolfers), it's no wonder the profession isn't trusted. We need more Tyler Cowen-types.

Of course, the middle way (between tax rate cuts and infrastructure spending by government) is expensing (an immediate deduction) for targeted capital expenditures. That was a big part of the corporate tax reform that has been discussed over the past couple of months but is nowhere to be found in the Trump proposal. Instead, the Trump proposal is little more than a give-away to a select few very wealthy people (including, in particular, Trump himself) and a take-away from the middle class in Blue States (because the proposal eliminates the deduction for state and local taxes). So what happened to expensing for targeted capital expenditures? In the first place, it wouldn't help Trump: contrary to myth, Trump doesn't actually build stuff, he licenses his name to others who build stuff. But more broadly, it's recognition that the American economy is increasingly a service economy not an industrial economy. Cowen ignores this in his Bloomberg post: contrary to what's implied in Cowen's post, there isn't actually a choice between capital investment by government (infrastructure) and capital investment by business (plant and equipment).

"targeted capital expenditures....Instead, the Trump proposal is little more than a give-away to a select few very wealthy people"

Isn't "targeted" anything normally just a give-away to the politically connected? Rate reductions hit everyone.

This was in the original tax plan offered, along with a border adjustment. The Dems have pretty much signaled they aren't signing on to any major initiatives, so that's going nowhere.

I guess we should all just ignore the fact that a lower corporate tax rate will create NEW businesses, and cause more existing businesses to move here?

Yeah, that's probably best. Let's focus on the irrelevant.

Like it did in Kansas, right? A lot of people that called themselves employees suddenly switched to being small businesses that worked for customers that happened to be their old employers.

Businesses that have high growth don't care all that much about tax rates: They are too busy growing. The one place where we have major dysfunction the repatriating profits issue.

And let's not forget, it's not as if Apple's shell games with their corporate structure is giving amazing jobs in Ireland: Last time I checked, they still do most of their engineering work in California, It must be because of the low taxes there, right?

Why don't you prove that "fact" before accusing others of ignoring it?

One thing they could do with the money is ..... buy more low interest government debt. Interests rates are low, how about asking WHY interest rates are low? Most likely, there will be some positive effect, but it will be small and temporary.

This proposal is disappointing. On the campaign trail, Trump said he'd eliminate the carried interest loophole. But now, instead of paying 20% through the loophole, they'll pay 15% on corporate income, if my understanding is right.

Eventually, taxes are going to have to go up to pay for this, along with all the dumb government programs the Democrats will enact if they retake power. Which they will, if Trump wastes his political capital on unpopular economic policies rather than addressing the issues that elected him: trade and immigration.

"On the campaign trail, Trump said he’d eliminate the carried interest loophole. But now, instead of paying 20% through the loophole, they’ll pay 15% on corporate income, if my understanding is right."

On carried interest, the relevant tax rate is actually the long-term capital gains rate. Hedge fund managers structure their fund as a partnership and assess part of their fees by "passing through" long-term capital gains the fund earns. Trump's proposal eliminates the 3.8% surcharge on long-term capital gains while apparently doing nothing to close this loophole. Oh, and it also completely eliminates inheritance taxes. Much like Bush's tax proposals, there are some good things for low-income people that serve as a deal sweetener to push forward enormous tax cuts for very wealthy people.

How will this enlarged deficit - boosting private investment while lowering government savings - fit with DJT's obsession with trade deficits? Unless the private sector uses that tax cut to buy government bonds, we're going to need foreigners to finance the budget deficit. And how do they get those dollars other than selling us more goods and services than they buy from us?

It's a bit of red herring with this administration to talk about the returns from private or government investment when the actual choices are private investment or military hardware while many of the things that make our system work - clean air, weather forecasting, assistance for the poorest - is on the chopping block.

"The new corporate investments will also create jobs and some valuable products as well, and that benefits more people than just the wealthy."

The pessimist might wonder whether companies would take their windfall and invest it at all. Many companies might simply hold the gain in money management accounts."

I am not convinced that the above scenario is pessimistic. To me it seems like it is a likely scenario i.e. the corporations will not invest their windfalls, instead most of the windfalls is going to get used up in share buybacks and dividends which will end up in the money management accounts of the shareholders.

For last few years the ratio of money spent on buybacks and dividends has been 3 to 4 X of the R&D spending by the S&P 500 companies, it is hard to see why that trend will change (I know the S&P 500 don't represent the entire US economy). However, it is not very encouraging to see some of the most successful companies choosing not to use their cash for more R&D (as you would say they prefer the 'complacent way' to increase the shareholder value).

The idea that "corporations have nothing better to do than to sit on their cash."

Since the whole scheme is designed to transfer money from the middle class to the very wealthy, it's quite likely that the impoverishment of the multitudes will leave corporations nothing better to do with their money than pay it out into the wallets of wealthy investors, who in turn can invest it in government debt, here and elsewhere, until the whole ponzi disintegrates.

The ability of Cowen to rationalize utter nonsense on behalf of his patrons never fails to amaze me.

How much hot pocket cheese is encrusted in this guy's keyboard edm's keyboard...

Impoverishment of the multitudes? What in the hell are you talking about ? Wages are going down and causing impoverishment? That's a bold claim.

Transfer money from middle class to "the very wealthy." What? Reducing my absurdly high tax burden does not equate to you transferring money to me. Those two things are not equal.

Giving you (and me) tax cuts with borrowed money is transferring money from future generations to people who already have more than most of them are usefully employing.

PS - Your insults might be less unintentionally amusing if you could figure out how to write a coherent English sentence.

I think Lawrence Summers deserves the "adult in this room" prize:


Williamson is correct of course but it's a political non-starter. Tyler correctly identifies the greatest defect in the plan which is that it does not expand the tax base. Thankfully Tyler's anti-complacency provides a sound basis for some easy fixes:

(1) A one time 30% levy on university endowments and elimination of tax deductibility of donations and earnings going forward. Shake up the stasis in higher education and use to offset the government's student loan exposure.

(2) A 10% surtax on income from tenured employment. Sinecures breed complacency.

(3) Eliminate 501(c)(3) status for think tanks and policy groups. Subsidized blathering is lazy blathering.

(4) A new Federal tax on conservation easements based upon the foregone economic opportunities. Let the smug landed gentry find a societally useful way to memorialize themselves.

(5) A $100 per voter annual poll tax. Voters need skin in the game to motivate dynamic involvement in the electoral process.

But of course there are too many more such remedies to list.

Wow, every word in this post is wrong, including 'and' and 'the'.

"every word in this post is wrong"

I think the phrase you're looking for is "I disagree with it."

Well yeah but I was trying to be snarky. Also to point out that anyone with a brain should disagree with it.

I disagree with all except 3. The justification for giving an organization 501(c)(3) status is that the government should nudge people to give money to it since that benefits society more than consumption or saving. I'm really not convinced for the think tanks and policy groups, some are creating negative value for society through deceptive propaganda.

Yeah, on that one I could be persuaded.

A poll tax which is refunded if you vote.

From libertarianish theatre critic Williamson: "Donald Trump’s tax plan calls for reducing the corporate-income tax to 15 percent. That’s about 15 points too high.

Mitt Romney was mocked for insisting “corporations are people,” but he was right: A corporation is a cooperation, a group of people acting together as one corpus for a particular purpose. And it would be easier and more simple to tax the people."

The problem here is obvious. Nobody wants to raise taxes on the people. Half don't pay. And Trump only wants to increase that number. And deductions allow many of the test to reduce the amount they owe.

So how does government get financed? If you believe we can borrow it alright. That's what we've been doing. But if you ever +1'd a post decrying Obama's deficit spending, what's your response to Trump?

Come on Moo Cow, that's the game of partisanship. Both sides do this, they flip flop on the meaning of deficits depending on who's in charge.

A corporation is a cooperation, a group of people acting together as one corpus for a particular purpose.

No it's not.

First, it's kind of hard for that many people to work together for a particular purpose.

Second, the makeup of the group changes literally every few seconds or so.

Third, most of the shareholders - somewhere around 99.99% - have no hand in helping the company do anything. They are passive investors.

Even if you think a company doesn't do something "useful" by not investing their cash, they are doing something useful for the economy by increasing the capacity of their bank to loan that cash out to others for useful things.

A large portion of repatriated cash won't sit in the bank or be invested in anything, except for buying back stock, which is what happened last time. Good for the stock market at least.

Democrats tax and spend.

Republicans borrow and spend.

So nothing has changed except Trump will need to have the trade deficit expand to fill the savings-investment gap the enlarged federal deficit will generate. Everything else he talks about creating the trade deficit is just symptoms, not the underlying cause. We had crowding out under Reagan, it just worked through the strong dollar not higher interest rates. Cheney was wrong because he was looking at the economy as a closed rather than an open economy
and so did not consider the harm to US manufacturing as a product of the Federal deficit..

Under Reagan the financing came from Japan, but their surplus savings has disappeared.
Under Bush the financing came from China, but that source is also drying up.
Under Trump, where will the financing come from?
Maybe it will not emerge and we will have crowding out through higher interest rates rather than a strong dollar.

Let me know when the Trump plan calls for the end of estate taxes which is truly unjustifiable and immoral tax for people who have worked and saved their entire lives to pass on to their children but are punished instead. The money has already been taxed multiple times prior to death. My guess is most other countries have no such tax.

Never mind, I just looked into some details and there is mention in the Trump plan to eliminate the estate tax. Tyler didn't discuss it in his column.

19 OECD countries have an estate tax. The US is the 4th highest rate. Right now you and your wife can pass $11 million tax free to the kids. This tax "punishes" the 0.001% but prevents Warren Buffett from passing his evil Democrat money to his descendants in perpetuity.

And actually it doesn't really prevent the rich from giving most of their wealth to the kids. The tax is 40% of assets above that $11 million (rises with inflation), so Buffett could still if he wanted to get a ton of cash to the next generation. But what gets prevented is compounding wealth in private hands, owned by people who had nothing to do with creating it.

So I'm not feeling bad for these poor rich folk. The reason Trump wants to end it is to save his own family billions of dollars. Some taxes need to be cut, not this one.

The tax is a net loser as Sweden has learned.

Without primogeniture, family wealth gets divided and naturally reverts to the mean after several generations.

The rich have something like 1.3 kids and they often marry other rich kids. With that and exponential growth, it'll last a long time.

Google "how to stay rich in europe bloomberg." This article tracked down the descendants of some old money families from centuries ago and found many of them are still extremely wealthy. Germany in particular seems like it could do with a more strict inheritance tax.

And even $11 million is an underestimate. Anyone who has that much money can afford to see an estate planning lawyer who will be happy to advise you on various tricks -- such as setting up trusts with your heirs named as beneficiaries -- to push the effective exemption even higher. I think there are also games one can play with life insurance to further minimize estate taxes.

The bottom line is that estate taxes only affect the extremely wealthy and by less than one would imagine at first.

OK, Al, if I sell an appreciated asset I get taxed on the gain.

But, in the inheritance world, there is something called "stepped up basis": "Under Internal Revenue Code § 1014(a), when a person (the beneficiary) receives an asset from a giver (the benefactor) after the benefactor dies, the asset often receives a stepped-up basis, which is its market value at the time the benefactor dies. A stepped-up basis is often much higher than the before-death cost basis, which is primarily the benefactor's purchase price for the asset. Because taxable capital-gain income is the selling price minus the basis, a high stepped-up basis can greatly reduce the beneficiary's taxable capital-gain income when the beneficiary sells the inherited asset." Wiki cite.

So, if you want to put everyone in the same boat, for the fairness reasons you described, let's eliminate stepped up basis.

Capital gains will handle that.

Fine, do that as occurred when the inheritance tax was briefly eliminated. But that means eliminating the 40% federal tax. There are still state inheritance taxes to deal with which can up the effective rate to well above 50%.

I agree no step up basis. No estate tax.

Because the country could really use a hereditary aristocracy that pays little or no tax.

What next, Earl Trump of the Tower?

No, it's not Earl, but rather young Barron of Trump Tower.

You have to hand it to those Trumps, though. Just think. Ivanka is worth $471 million. What a hard working girl to do this on her own.

Yes. Truly admirable.

I wonder why more of those poor kids can't accomplish the same. It really is wildly unfair to tax her inheritance, which she earned by dint of hard work.

The way I look at the estate tax is, if you were to hire your children to work for a family business, they would pay income and payroll taxes like everyone else. Why should money they receive for doing literally nothing get special treatment? Why "punish" people who actually work for a living? Our effective $10 million exemption guarantees that nobody will be living in poverty because of estate taxes.

It is essential to have greater and more detailed assurances that the tax reform will embody sufficient regulations to limit these kinds of arbitrage.

Ha, ha. You're quite the comedian, Tyler.

Lowering Taxes: I put forth lowering corporate taxes decreases the amount of political influence corporations will have. What more can a politician give other than a tax break? Oh wait, that's right, lower regulation (i.e. when the cat's away the mice will play). It will translate into more environmental exploitation, and less individual and consumer protections. Just FYI, the government gets most of it's revenue from personal income tax (https://www.nationalpriorities.org/budget-basics/federal-budget-101/revenues/) not corporations.

Overall, it will have positive short-term effect on GDP,and the stock market (less regulation means more companies will go public), but in the long term? The average lifespan will go down. The magnitude of these effects, I can only guess. My take on corporate taxes is to add randomness to the rates. Make the randomness equal or greater than the corporate revenue risk and they will be forced to work on real value items rather than game the system. A few people stand to gain huge amounts for minor tweaks at corporate levels. That's an asymmetry that misplaces incentives.

This argument for a corporate tax cut — “let’s borrow more now while rates are relatively low” — is remarkably like the argument that Keynesians have been using for more government infrastructure spending for years.

Except for a few things.

Corporations can already borrow quite cheaply, not to mention they have plenty of cash. So why will the tax cut stimulate their investment?

Government infrastructure projects can be - yes - of limited scope and duration. Tax cuts are forever.

The private rate of return is mostly captured by corporations and their investors. The return on public investment is more broadly distributed.


The best thing that can be said about this column is that it is an exercise in trying to put lipstick on a pig. I hope Tyler is not really taking his arguments seriously.

It is fair to say that the plan was not entirely well, as too many people had issues over it and that was visible on price dropping. Now things have settled down fair bit, it’s easier with broker like OctaFX because they are high class and helps us with keeping up with all the happening in the market. I also feel happy with the list of features and facilities from small spreads at 0.1 pips to high leverage up 1:500 and we also get the massive deposit bonus that’s 50%.

That's all well and good as long as you assume that all or most of the tax cut is poured into real investment and not redistributed as dividends or share buybacks, or used to deleverage.

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