Results for “corporate tax” 239 found
Should Verizon be allowed to charge Internet content providers?
I have long feared this development:
Verizon, Comcast, and their ilk have been lobbying Congress to
transform the Internet into a two-tiered system. By tagging content,
broadband providers would ensure that their own packets (or those from
companies paying them protection money) get preferential treatment and
reach subscribers faster than second-tier content. This would give
companies like Verizon a tremendous advantage as they roll out their
own television and VoIP telephone services.
Telco-cable companies have spent billions to lay down broadband pipe
and want a return on their investment. They are tired of bandwidth hogs
like Google, Amazon, and Microsoft getting a free ride. This was fine
when the Internet consisted mostly of e-mail and static Web pages. With
the advent of online video, Internet telephony, and IPTV, Verizon, AT&T, and BellSouth want content providers to share the cost.
Their reasoning: If Google is going to introduce a video service,
shouldn’t it have to pay for some of the bandwidth it scarfs down?
…If the telcos and cable companies get their way, we’ll have a
Balkanized Web. Content providers who can afford to pay for premium
service will market superior products to consumers with fast
connections. Everyone else will make do with second-class companies at
second-class speeds.
There is much more in this fascinating article. In purely economic terms, the idea of charging Google or other "bandwidth hogs" does not sound outrageous. (What would the incidence of such a price hike be? Would cable connections become cheaper, or do the cable companies have too much mononpoly power?) But in public choice terms, this would bring politically-influenced pricing. Don’t expect porn or blogs to get a break. The net would become much more corporate. The perils of regulation aside, Verizon probably would favor its own products, and no, Harold Demsetz never disproved this tendency.
The beauty of the status quo is that web sites compete on the basis of consumer surplus alone. The bandwidth costs end up as a fixed charge on net access as a whole; I suspect this hits many inelastic demanders, a’la the Ramsey rules for optimal taxation. Admittedly it may be a bad deal for the poor who cannot afford to connect, but the overall arrangement enhances the long-run "competition of ideas" feature of the net.
One second-best solution is to charge users for bandwidth per se, while not discriminating across differing uses of that bandwidth. In essence this would tax file-sharing while leaving most content decisions unaltered. Alternatively, a tiered net could lead to more Wi-Fi networks, whether at the municipal level or constructed by Google. If that is where we are headed anyway, this apparently troubling development could rebound to our collective advantage. We might end up bearing the fixed costs of the transition sooner than is optimal, but again the dynamic benefits of the new arrangement might swamp that problem.
Comments are open…will my free market readers defend Verizon’s right to charge Google bandwidth fees?
Austan Goolsbee is smart
Try this:
The evidence shows that companies are particularly likely to raise
prices when the government is footing the bill. Economists Mark Duggan
at the University of Maryland and Fiona Scott Morton at Yale studied
the prices of the top 200 drugs in the United States from 1997 to 2002.
They found that drug makers gamed the government procurement rules that
forbid companies from billing Medicaid more for a drug than they bill
private consumers. When private-sector demand for a drug is small
compared with the demand of Medicaid patients (as is the case, for
example, with antipsychotics), drug companies massively inflate the
price of the drug for private buyers. Sure, they lose some business
from that part of the market. But they more than make up for that loss
by being able to bill the government at a vastly higher price for the
Medicaid patients.
And this:
As the moral-hazard problem for medical expenses becomes a corporate
rather than individual matter, the solution that economists currently
favor–Health Savings Accounts–will fail to rein in costs. The HSAs
won’t fix things because they change the incentives of individuals, not
companies. Indeed, as more people get HSAs, we may very well see the
companies raise prices even further to capture the tax-free savings in
people’s accounts. That would be exactly analogous to what has happened
with "529" college savings programs. In 2001, Congress passed a tax
break for college savings accounts. As I wrote three years ago,
the plans were "supposed to be an enormous federal tax subsidy for
education." But the small number of financial firms that are approved
to manage the 529 accounts have basically captured that subsidy by
raising their investment fees to levels well above those in the regular
investment market.
I believe the argument, although it remains a puzzle why these markets do not behave in a more competitive fashion…
Bait and Switch: final installment
I talk about labor markets and public policy, here is one nibble from my final Slate.com piece:
…displaced white-collar workers do not lead my list of victims deserving compensation. It is unfair that a 56-year-old is now expected to compete in a world for which he was never prepared. But we ought to be realistic. These transitional costs are borne by a class that has been about the richest and freest human history has seen. Let us say that you, Alan, could design a public policy to ease their readjustment. I probably would zero out that budget line and spend those funds in Niger, or on boosting the Earned Income Tax Credit, or paying for future Medicare benefits, or, dare I say it, lowering the corporate income tax as a means of encouraging white-collar re-employment.
Tyler’s Ideas for Bush’s Second Term
Here from an earlier post are Tyler’s ideas for a second term. Good ideas all. Keep your fingers crossed.
1. Eliminate all farm subsidies, tariffs, quotas and price supports.
2. Tell Western Europe it is paying for its own defense from now on.
3. Admit that the Medicare drug prescription bill was a mistake. Repeal it, and consider a revenue-neutral benefit that does not discriminate against prescription drugs. Introduce means-testing for Medicare to stop that program from bankrupting us. I would rather cut this benefit than repeal the tax cuts [tax shifts, correctly, though spending discipline could turn them into real tax cuts.] The long-run benefits of greater capital accumulation remain significant.
4. Negotiate bilateral free trade agreements as rapidly as possible. Start with Japan, the second largest economy in the world.
5. Strengthen America’s commitment to science. This will have implications for educational policy, immigration policy, and regulatory policy. Don’t restrict stem cell research. Hope that science comes up with affordable and politically sustainable solutions for global warming and clean energy independence. You might have libertarian objections to science subsidies, but the realistic alternative today is more government intervention.
6. Strengthen early warning systems against infectious diseases. Increase research into cures, vaccines, immunity, and the like. We don’t want the world to lose fifty million people to avian flu or some other malady.
7. Take in more immigrants, but demand higher levels of skills and education. At the very least, take in any revenue-positive immigrant.
8. Abolish the Department of Education.
9. Abolish the Department of Energy.
10. Repeal all corporate welfare.
11. Repeal the corporate income tax. Repeal the Alternative Minimum Tax. Admittedly these are “ifs,” depending on fiscal considerations.
12. Get on TV and tell the nation that a free economy is a critical source of our strength. Tell them you mean it, and then mean it. Economic growth is the greatest long-run gift we can give to the world.
Why have labor markets been slow to recover?
Employment is an increasingly lagging indicator, here is more data. Growth and productivity are humming along, but employment as a percentage of population fails to impress. Consider a few reasons why this might be:
1. Productivity growth is high, so employers are disinclined to hire more workers. The workers they already have are producing plenty. This explanation, of course, requires that firms have some market power, so they can’t sell all they want at prevailing market prices. There is then little point in hiring more workers, even if wages were to fall, because the extra output would be hard to sell at a good price. Of course if real demand were rising or otherwise robust, high productivity could cause firms to hire more workers rather than fewer.
This all may lead some of my astute readers to wonder what coordination failure is preventing Say’s Law from holding in this context. Does not supply create its own demand, at least barring a massive increase in the demand to hold money? Read Alex for more on this one.
2. The data may overstate the puzzle in the first place.
3. Maybe we are mismeasuring employment by focusing too much on the payroll survey and not enough on the household survey. But just try mentioning this one, and Brad DeLong will thwack you hard. Do note that Alan Greenspan agrees with Brad. The two measures are often quite different, but I have to go with the payroll survey here.
4. Health care costs per worker are extremely high. True, but this has been the case for some time.
5. Some parts of the Bush tax plan have induced firms to substitute capital expenditures for labor. And in the short run, capital and labor may be more substitutable, and less complementary, than in times past. Information technology can substitute for unskilled labor more than before.
6. Bush introduced a “tax cut for the rich,” rather than undertaking fiscal stimulus of the traditional Keynesian kind; read Brad on this one. I am less sanguine about traditional fiscal policy, plus this doesn’t explain why labor market recovery has been so slow, even if it might have been more rapid under different conditions.
7. Firms are outsourcing jobs overseas. The ever-excellent Daniel Drezner debunks this one, though I am not quite ready to assign it measure zero in effect.
8. For some unknown sociological or economic reason, workers are getting discouraged from seeking work more easily than in times past. They leave the labor force, which keeps the percentage of employed low but the unemployment rate low as well. I don’t rule this out, but I don’t have a contending hypothesis here either.
9. Firms are/were uncertain about terrorism, Iraq, corporate scandals, new information technologies, and sectoral shifts. Rather than locking in with hires, they will hold back and wait. But why would this affect labor more adversely than investment or stock prices?
10. Downward stickiness of wages. OK, this is what classical economics would lead you to expect, but in reality wages have become less sticky over time.
The bottom line: The conventional wisdom will opt for some combination of one and nine. Four, five, seven, and eight may explain further pieces of the puzzle. But I would sooner call the whole thing a continuing mystery. Note that most of these hypotheses imply that the economy can still become quite a bit better yet. Either Bush or Kerry will get credit for this, without deserving the plaudits.
Addendum: Arnold Kling adds to the mix.
Will John Kerry bring fiscal discipline?
No, but a Republican Congress might:
My AEI colleague Eric Engen and I [Kevin Hassett] just completed a detailed analysis of the Kerry spending proposals. To perform the analysis, we combed through Kerry’s web site and public statements to assemble a list of every spending promise he has made, and then dug through the public record to find third-party cost estimates for each of his proposals. When necessary, we adjusted the period for the existing score to the 10-year budget window using standard techniques. When we could not find such cost estimates, we relied on numbers that were supplied by the Kerry campaign. When the Kerry campaign did not provide cost estimates, we set the score for that promise to zero.
Even with that generous accounting, the Kerry spending promises add up to an extraordinary amount of money. Our best estimate is that Kerry’s proposals will add up to between $2 trillion and $2.1 trillion over the next ten years. Since the revenue from his tax proposals relative to the current baseline is actually negative, this implies that the Kerry proposal would increase the deficit by perhaps as much as $2.5 trillion over the next ten years.
On August 3, 2004, the Kerry campaign responded to criticisms such as this with a revised budget plan. The main difference between the first and second plans is that the campaign now claims to be able to save about $300 billion from eliminating corporate welfare. Even if we include this rather implausible savings in our estimate, the net increase in the deficit associated with Kerry’s proposals is on the order of $2.2 trillion.
What would he spend the money on? According to our analysis, roughly half of this additional spending is attributable to Senator Kerry’s health care proposals that would add more than $900 billion in federal outlays. Education expenditure accounts for nearly one quarter of Kerry’s new spending, with almost $500 billion added over ten years. A $400 billion expansion of military personnel and benefits for veterans comprises most of the remainder of Kerry’s spending plans, with the balance distributed among numerous social programs and increases in international aid.
I have not been through these numbers, but Kerry has not exactly been running on a platform of spending cuts. Most of all, I’d like to see a further analysis, weighting each number by the probability it will pass into law.
Thanks to TCS for the link.
Further thoughts on declining architecture
Last week I asked why urban architecture appears to have declined in the United States. Readers have offered two further suggestions (also read the trackbacks on the original post):
1. Property taxes create an incentive to improve interior quality rather than exterior quality
2. The need to accommodate automobiles makes it harder to design attractive buildings and cities.
The New York Times ran a feature story on exactly this question. Here is a key passage:
As more high-profile buildings by foreign architects rise in the United States, and as computers allow architects to strive for engineering, design and construction complexities never before imagined, a gathering rumble can be heard across the profession about the way America builds. The country has garnered a reputation for overlooking gaping joints, sloppy measurements and obvious blemishes, and refusing to deviate from even the most outmoded standardized practices. Having exported its expertise, in the 80’s and early 90’s, to destinations from Singapore to Dubai, it is now facing stiff competition from Europe and Asia, where the building traditions favor singularity, craftsmanship and durability over speed and cost.
Most recently at Seattle’s new Central Library, Rem Koolhaas, the Dutch architect, set out to debunk what is perceived as an all-too-common attitude in the American construction industry: if it looks hard to build, don’t, because it will be too expensive. According to Joshua Ramus – a partner at Koolhaas’s firm, Office of Metropolitan Architecture, who is in charge of American projects – no American contractor wanted to take on the building’s highly unusual structure, which is folded like a gigantic mesh party napkin. “They said there was no way anyone could do that on that budget,” Mr. Ramus said of the $165 million library. “We said: `Invest in thinking. It may be expensive but it’s a lot cheaper than bad building.’ “
Construction in the United States relies on the quick fix, said Sara Hart, a senior editor at Architectural Record. “Got a gaping one-inch space between frame and window? Just fill it in with silicone and call it a day. Not perfectly flush or plumb? Who cares!” is the typical American response, she said. “While in Germany or Switzerland, they’d rather die than have a gap of more than one-eighth or even one-sixteenth of an inch.” And though no one is calling Frank Gehry’s Walt Disney Concert Hall slapdash, most American construction aspires to cookie-cutter commercial development rather than high-profile brand-name architecture. Furthermore, in Europe, buildings tend to be smaller and clients accustomed to spending more. One way or another, the conditions have made for considerable bragging rights on the part of European and Asian architects.
Dana Buntrock, an architecture professor at the University of California, Berkeley, and the author of “Japanese Architecture as a Collaborative Process” (Spon Press, 2001), said she once believed that quality was tied to wealth. “Now I am beginning to wonder if well-built architecture occurs only at a very fragile economic moment,” she said. “You need not only affluence, but a group of people who are well paid enough to remain in the crafts and building trades even though they are intelligent, and you need the overall size of an architectural project to remain relatively small.” While enclaves of craftsmen and small companies cultivating specialty talents, like customized steel work or casting plaster, are growing in the United States, large corporate construction companies still rule the sites, with their supersize-me approach to building.
Some of these claims, of course, beg the “why” question. The article also notes that design approval now requires more sign-offs than ever before, which tends to encourage a least common denominator approach to moving forward.
The Bush vision for term two
The Bush team apparently has announced its economic priorities for a second term. The general vision speaks of an “ownership society,” here is one sketchy summary. Partial social security privatization stands at the center of the plan. Brad DeLong wonders where the money will come from. Rather than pursuing this issue, I have wondered what the vision should look like. Here are a few ideas:
1. Eliminate all farm subsidies, tariffs, quotas and price supports.
2. Tell Western Europe it is paying for its own defense from now on.
3. Admit that the Medicare drug prescription bill was a mistake. Repeal it, and consider a revenue-neutral benefit that does not discriminate against prescription drugs. Introduce means-testing for Medicare to stop that program from bankrupting us. I would rather cut this benefit than repeal the tax cuts [tax shifts, correctly, though spending discipline could turn them into real tax cuts.] The long-run benefits of greater capital accumulation remain significant.
4. Negotiate bilateral free trade agreements as rapidly as possible. Start with Japan, the second largest economy in the world.
5. Strengthen America’s commitment to science. This will have implications for educational policy, immigration policy, and regulatory policy. Don’t restrict stem cell research. Hope that science comes up with affordable and politically sustainable solutions for global warming and clean energy independence. You might have libertarian objections to science subsidies, but the realistic alternative today is more government intervention.
6. Strengthen early warning systems against infectious diseases. Increase research into cures, vaccines, immunity, and the like. We don’t want the world to lose fifty million people to avian flu or some other malady.
7. Take in more immigrants, but demand higher levels of skills and education. At the very least, take in any revenue-positive immigrant.
8. Abolish the Department of Education.
9. Abolish the Department of Energy.
10. Repeal all corporate welfare.
11. Repeal the corporate income tax. Repeal the Alternative Minimum Tax. Admittedly these are “ifs,” depending on fiscal considerations.
12. Get on TV and tell the nation that a free economy is a critical source of our strength. Tell them you mean it, and then mean it. Economic growth is the greatest long-run gift we can give to the world.
What I liked about Bush, way back when, was that he seemed willing to talk tough truths and then follow through. Where has that gone?
Secession
Recently Killington voted to secede from Vermont and join New Hampshire. Some people find this desire quixotic since Killington is smack dab in the middle of Vermont. The classic Tiebout argument says that voting with one’s feet helps to discipline government and provide a better match between government and citizen preferences. But why should the dissidents have to pack their bags? It’s the Vermont taxes that the residents of Killington want to escape not the skiing. Wouldn’t it be less costly to switch governance rather than citizens?
Does such a system sound crazy? Perhaps, but it is essentially the same supra-competitive federalism that has worked well for corporate law, so maybe we ought to give it a try.
And remember, if at first you don’t secede, try, try again.
The jobless recovery
This week’s Business Week had a useful though non-revelatory feature article on the jobless recovery (note that the paper edition has much more than the link).
The bottom line? Two root causes — productivity gains and fear — appear to be causing our economy’s weak employment performance.
Rapid productivity gains mean that a business can produce the same output with fewer workers. So unless demand is truly booming, why hire more people?
At the same time uncertainties have kept business cautious. Terrorism, corporate scandals, and the bursting of the high-tech bubble all provide extra reasons to wait. Counterintuitively, largely positive changes, such as productivity boosts and their accompanying sectoral shifts, can spur caution as well. Why make your irreversible investment today when you will know more two years’ down the road?
Some research sources suggest that outsourcing has cost the U.S. only 300,000 jobs in three years, though all such figures should be taken with a grain of salt (for instance, when calculating the number, what is the relevant counterfactual?). A Wall Street Journal survey (12 March 2004) found that only sixteen percent of responding economists blamed outsourcing as a significant source of job losses. More importantly, outsourcing creates more jobs than it destroys; let us not forget the positive role of insourcing as well, the U.S. receives massive capital flows from outside.
And who is to blame for the jobless recovery? Paul Krugman finds a not unsurprising culprit:
…should we blame the Bush administration? Yes – because it refuses to learn from experience. Franklin Roosevelt, in his efforts to combat economic woes, was famously willing to try anything until he found something that worked. George Bush, by contrast, seems determined to try the same thing, over and over again.
I hope Krugman does not really mean the Roosevelt point. Recall that the Great Depression was by many measures worse in 1937-8 than in 1932. A willingness to “try anything” is hardly a recipe for economic success.
And while I buy the Krugman line on Bush’s fiscal irresponsibility, we don’t find it priced in the bond market. So why should we think those bad policies are driving the labor market?
Brad DeLong suggests that the tax cut was ill-targeted for the purposes of stimulating aggregate demand. Point granted. That being said, government is better at stimulating nominal rather than real aggregate demand. In times of structural uncertainty, often the latter is more badly needed. So I don’t blame Bush fiscal policy, whatever its flaws, for the jobless nature of recovery.
The Democrats have little to offer in the way of short-run cures. Perhaps assisting the jobless can be defended on distributional grounds, but it can delay reemployment as much as boost it. A new President, whether or not you favor the idea, would increase rather than lower uncertainty, at least at first. Greater fiscal responsibility will pay off in the future (I am all for it), but I don’t see how it will boost employment over the course of, say, two years. Most of the relevant uncertainties are real and structural in nature.
Read this post on why many people are no longer looking for jobs. Reeducation is a significant reason why many people have stopped looking for work. This might someday kick in with higher productivity. But note also that workers fear being locked into jobs that will later brand them as losers. So in times of uncertainty they, like businesses, often will simply prefer to wait.
The bottom line: There is a potential silver lining in the cloud that we call the jobless recovery. Once those people get to work, output could be especially high, provided we don’t mess up in the meantime. That being said, responsible economists all along the political spectrum remain puzzled by the jobless recovery. We can cite and roughly agree on its causes. But at the end of the day, relative to other recoveries, we all remain surprised by the slowness of employment to adjust.
Addendum: Here is Alex on productivity and employment.
The new Michelin winners
The Michelin dining guide will upgrade three restaurants, all in France, to three-star status. One three-star restaurant will be demoted to two stars. The Michelin three-star designation is the highest a restaurant can obtain, right now there are only twenty-seven three-star restaurants in the world.
Perhaps it is no accident that only three stars are used for the world’s most rigorous restaurant system (Gault-Milleau, in contrast, has a scale up to twenty). The smaller the number of stars, the harder it is to inflate the standard. If the scale has one hundred steps, no one can really tell if a “73” restaurant is pushed up to a “75” rating by mistake. Ratings inflation can slip in over time. But everyone knows if a restaurant is elevated to three-star status by mistake.
Michelin precommits to quality rankings and takes great care to preserve its name as a restaurant “gold standard.” It is commonly believed that the number of three-star restaurants in France is capped, in fact it has remained close to twenty-one since the mid-1930s. Furthermore it is harder to get back a third star once you have lost it, than to win it in the first place, see the first link for more information.
French cooking may be suffering under excess taxes and labor market regulation, but French food criticism is alive and well, in this case under corporate auspices and subsidy. The Red Guide does not make money on its own terms, but rather serves to advertise the parent company and burnish its image. It is a classic instance of the private production of public goods.
So the next time that Roger Ebert gives a movie either a “thumbs up” or a “thumbs down,” this is a signal that he is offering a truly important evaluation.
The case for lifetime savings accounts
Glenn Hubbard, former chair of the CEA, argues that we should not tax savings:
While the Lifetime Saving Account (LSA) offers substantial simplification benefits, it also offers a vehicle to save more easily for a downpayment on a home, children’s education, or for medical expenses. With no withdrawal penalties, the account’s greater liquidity will encourage individuals to save, particularly moderate-income households worried about tying up funds for a long period of time. Like the president’s proposal to eliminate investor-level taxes on dividends, the LSA lays claim to the idea that income should be taxed only once. Indeed, given the generous contribution limits, most households could avail themselves of a consumption tax akin to the Flat Tax. They would pay taxes once when they earned wages or business income, but not again on returns to saving. This is an important step toward fundamental tax reform, particularly if the administration continues its recognition of the costs of double taxation of corporate income.
How much would capital accumulation go up?
To assess the impact on capital formation, one should compare the present value of additional private capital formation to the present value of lost tax revenue. Jonathan Skinner of Dartmouth College and I estimated that with even 25 cents of each dollar contribution as new saving, IRA contributions generate $2.21 of new capital per dollar of net revenue cost. If, as suggested by Harvard economist Martin Feldstein, one includes corporate income tax revenue from the higher capital stock made possible by the saving incentives, the ratio rises to $4.84 of net capital per dollar of new revenue cost. If each dollar of contributions contains 40 cents of new saving and one incorporates higher corporate income tax receipts, the savings incentives are actually self-financing.
My take: I’m totally on board kind of sort of. Until we address runaway government spending, tax changes will only bust the budget in the shorter run. Even with elasticity optimism, we won’t ever arrive at the self-financing equilibrium. Furthermore I will never have that much faith in any particular numerical projection. My main worry is stopping the current drain of resources from the private sector. And no, a trip to Mars is not just what the doctor ordered. Right now U.S. fiscal policy needs credibility and needs it badly. Won’t markets just think that any revenue boost will fly out the window as quickly as it comes in? Isn’t politics, and thus economics, first and foremost about subjective perceptions? Hubbard’s proposal, for all its merits, doesn’t address the core problems.
Addendum: Here is Brad DeLong’s recent post on the fiscal costs of social security privatization plans.
The forthcoming energy bill
Here is Andrew Sullivan, quoting John McCain and commenting on him:
“I’m not saying that this bill won’t generate some energy. It will certainly fuel the coffers of big oil and gas corporations. It will propel the wealthy special interests. And it will boost the deficit into the stratosphere. Indeed, this legislation can be fairly called the Leave no Lobbyist Behind Act of 2003.
There are also four proposals known as ‘green bonds’ for construction of commercial buildings that will cost taxpayers $227 million to finance approximately $2 billion in private bonds. One of my favorite green bond proposals is a $150 million riverfront area in Shreveport, Louisiana. This river walk has about 50 stores, a movie theater and a bowling alley. One of the new tenants in this Louisiana Riverwalk is a Hooters restaurant. Yes my friends. Here we have an energy bill subsidizing both hooters and polluters.” – Senator John McCain, on the monstrosity otherwise known as the Energy Bill. How any principled, small-government, free-market Republican could vote for this vast waste of public money is beyond me. But we’re beginning to realize that GOP has nothing to do with small government or fiscal sobriety. It’s a vehicle for massive debt and catering to the worst forms of corporate welfare. Thank God for McCain. Bush should veto this bill, until it is de-porked. He won’t, of course. He has yet to veto a single big-spending bill. He doesn’t seem to give a damn about what is happening to the fiscal health of this country.
For a less polemical assessment, but ultimately a similar evaluation of the substance, see the ever-reliable Lynne Kiesling, start at this permalink and scroll downwards for running commentary and links.
Addendum: Senators from both parties criticize the bill as well, read here.
Glenn Hubbard’s consistency test
Glenn Hubbard (registration required), in a Financial Times review of Robert Rubin’s new book, throws down the gauntlet. You might recall that Hubbard was one of the architects of Bush’s dividend tax cut plan.
Hubbard argues that deficit-cutting is motivated by the view that lower real interest rates will stimulate private investment. But then private investment must be sensitive to price incentives, and a tax cut on investment returns should stimulate investment as well. He describes Rubin (and others) as believing in an asymmetric response, whereby investment is interest-sensitive but not tax-sensitive. Either investment is price-sensitive or it is not, and we should hold a consistent attitude for either lower interest rates and lower tax rates.
My take: Hubbard is right. We should not hastily conclude, however, that a tax cut on dividends was the best way to go. Dividends transfer money from one pot to another, and this is distinct from constituting a real net rate of return. I would sooner have cut and reformed the corporate income tax. In the meantime, however, let us all apply this consistency test to ourselves, are you listening deficit hawks?