Results for “corporate tax” 239 found
Friday assorted links
1. Long chat/profile with me, in Brazilian Portuguese.
2. Cargo containers for Lagos housing.
3. Will India replace cash with biometric e-payments?
4. Noordhoek eco-estates protect the rich from the reality of Masiphumelele.
5. The rich have a lower inflation rate (pdf).
6. John Cochrane on corporate tax.
7. “In summary: Most US imports from Mexico are intermediate and investment goods, not consumer goods.“
Peter Navarro outlines the Trump economic plan
To score the benefits of eliminating trade deficit drag, we don’t need any complex computer model. We simply add up most (if not all) of the tax revenues and capital expenditures that would be gained if the trade deficit were eliminated. We have modeled only the impacts of implicit profits and wages, not any other economic aspect of the increased activity.
Trump proposes eliminating America’s $500 billion trade deficit through a combination of increased exports and reduced imports. Again assuming labor is 44 percent of GDP, eliminating the deficit would result in $220 billion of additional wages. This additional wage income would be taxed at an effective rate of 28 percent (including trust taxes), yielding additional tax revenues of $61.6 billion.
In addition, businesses would earn at least a 15% profit margin on the $500 billion of incremental revenues, and this translates into pretax profits of $75 billion. Applying Trump’s 15% corporate tax rate, this results in an additional $11.25 billion of taxes.
Emphasis is added by this author.
Here is the full document (pdf). Here is my earlier profile of Peter Navarro. For the pointer I thank the excellent Binyamin Appelbaum.
Addendum: Scott Sumner comments.
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.
Growth of income and welfare in the U.S, 1979-2011
This new NBER paper by John Komlos is of real interest, and it documents the “average is over” idea of the dwindling of middle class fortunes:
We estimate growth rates of real incomes in the U.S. by quintiles using the Congressional Budget Office’s (CBO) post-tax, post-transfer data as basis for the period 1979-2011. We improve upon them by including only the present value of earnings that will accrue in retirement and excluding items included in the CBO income estimates such as “corporate taxes borne by labor” that do not increase either current purchasing power or utility. We estimate a high and a low growth rate using two price indexes, the CPI and the Personal Consumption Expenditure index. The major consistent findings include what in the colloquial is referred to as the “hollowing out” of the middle class. According to these estimates, the income of the middle class 2nd and 3rd quintiles increased at a rate of between 0.1% and 0.7% per annum, i.e., barely distinguishable from zero. Even that meager rate was achieved only through substantial transfer payments. In contrast, the income of the top 1% grew at an astronomical rate of between 3.4% and 3.9% per annum during the 32-year period, reaching an average annual value of $918,000, up from $281,000 in 1979 (in 2011 dollars). Hence, the post-tax, post-transfer income of the 1% relative to the 1st quintile increased from a factor of 21 in 1979 to a factor of 51 in 2011. However, income of no other group increased substantially relative to that of the lowest quintile. Oddly, the income of even those in the 96-99 percentiles increased only from a multiple of 8.1 to a multiple of 11.3. We next estimate growth in welfare assuming diminishing marginal utility of income. A logarithmic utility function yields a growth in welfare for the middle class of roughly 0.01% to 0.07% per annum, which is indistinguishable from zero. With interdependent utility functions only the welfare of the 5th quintile experienced meaningful growth while those of the first four quintiles tend to be either negligible or even negative.
Edward Luce is what I call “prescient plus”
A few days ago he wrote this subtitle in the FT:
Self-interest guides the Big Data companies, and the same is often true of the White House
And this:
Big data’s agenda is not confined to immigration reform. Among other areas, it has a deep interest in shaping what Washington does on privacy, online education, the school system, the internet, corporate tax reform, cyber security and even cyber warfare. Big data is also likely to be influential in the US-European trade partnership talks, which start this month. Whether the sector becomes a thorn in the side of the process remains to be seen. Either way, Americans should be relieved someone is making the case for privacy.
He closes with this:
A century ago, Theodore Roosevelt pushed back against the power of the rail barons and oil titans – the great technological disrupters of his day. Mr Obama should pay closer heed to history. And he should become wary of geeks bearing gifts.
Don’t forget this line:
One of the geekocracy’s main characteristics is a serene faith in its own good motives.
The general problem is the unholy government and tech alliance, based on a mix of plutocracy, information-sharing, and a joint understanding of the importance of information for future elections. Which current politician wouldn’t want to court the support of tech, and which major tech company can today stand above politics?
I will add this: if you were surprised by today’s revelations, shame on you!
Paul Krugman does believe that an attack of the bond vigilantes would be expansionary
You can read him here. Keep in mind we are talking about a sudden leap upward in interest rates, a sharp rise in the risk premium, and a sudden fall in bond prices. In response, I suggest a multi-step program:
1. Read Gary Gorton on how much the decline in the value of mortgage securities — if only as collateral — damaged the global economy during 2008 by causing a credit collapse, including in but not limited to the shadow banking system.
2. Estimate size of said effect for a serious price decline for U.S. Treasury securities, a much larger and more central and otherwise more secure market. Do not leave out margin call effects or negative effects on the eurozone.
3. Compare said effect to short-run benefits from exchange rate depreciation, taking into account lags and J-curve effects and the relatively closed nature of the American economy and the slowdowns in other countries around the globe.
4. Run a Chicago Booth questionnaire study to see how much of the profession will agree with you.
5. Flee in panic.
6. Start praising the Republican Party for their macroeconomic acumen in damaging the credit reputation of the U.S. government.
7. Declare yourself an “elasticity optimist” when it comes to relative price shifts and lower tax rates. Team up with the U.S. Chamber of Commerce to write a study calling for the immediate slashing of corporate tax rates, or at least corporate tax rates as applied to exports. The theory of exchange rate incidence is the theory of tax rate incidence, and furthermore, by happy coincidence, lower tax rates do not involve all of the costs of a financial crisis.
8. Ponder technical questions such as “if I think bad news is more than offset by gains from exchange rate depreciation, do I also think that good news is more than offset by losses from exchange rate appreciation?”
9. Read Thucydides, or perhaps Broadwell, about how a crisis is not always manageable once underway.
Krugman’s is a reckless position, and simply noting that America borrows in its own currency doesn’t come close to defending it.
Addendum: Here are comments from Nick Rowe. And from Scott Sumner. And David Beckworth. And Evan Soltas. And here is my earlier post on exchange rates and the like.
Not your grandpa’s aggregate demand shortfall
Andrew Smithers, of the consultancy Smithers & Co, said in December that US profit margins were at a record level and had expanded in the past three years even as output fell.
“Margins have been as good as it gets,” says Graham Secker, European equity strategist at Morgan Stanley. He adds corporate profitability over the past 20 to 30 years has gained from factors such as technological advances, falling corporate tax rates, low funding costs and declining commodity prices.
Analysts at Citigroup say operating margins at S&P 500 companies are close to the highs of 2007, partly because of the fall in unit labour costs. “A reluctance to hire more employees as well as outsourcing to lower-cost alternatives have left management teams with lean and mean companies,” they say.
Some analysts remain optimistic about prospects for the US. Gerard Lane, equity strategist at Shore Capital, says: “Even though US margins are extended, they do not necessarily have to fall at the moment.
“As a long-term trend, these businesses are gaining more of their profits from overseas. It is only when unit labour costs at S&P companies start growing at more than 2 per cent a year that margins will start to fall.”
Here is more, from the FT.
I expect your comments on this post will be awful, try to prove me wrong
Karl Smith asks:
I am specifically going to ask Yglesias, Drum, Cowen, Ozimek and Barro (Josh) to chime in on this. Anyone else feel free as well, but I would like to hear from these guys.
I don’t care if Mitt Romney pays negative taxes, cheated on his mistress with her daughter, fired his Grandmother while at Bain, and lied to kids to get the GOP nomination, etc.
What are the significant differences that you think we could actually see come to pass from a Romney Presidency versus an Obama Presidency?
I am generally a better-the-devil-you-know kind of guy, but I am pretty open here. So, let me here it.
Kevin Drum offers a specific answer. I have not invested much energy in following Romney or the other Republican candidates, so this is a rough, impressionistic response. Here are a few points:
1. I expect Romney to claim he has repealed ACA, but in fact he will change five aspects of the law and cement the rest of it in place, albeit in a less progressive manner and with lower Medicaid expenditures. (Outright repeal actually would not be easy, not to mention filibuster issues.) He knows he doesn’t have any other “right-wing health care plan” in his back pocket, won’t be willing to restore the status quo ex ante, and he will be willing to take the “Tea Party knock on the chin” very early on in his term, hoping to repair the fence later. Ultimately letting the issue fester doesn’t help him, and he is smart enough to realize that.
2. The Republican Party will split very quickly. For instance, will AEI support or oppose Romney in an early action like this? I don’t know, but I see massive carnage. Democrats may end up happier than they expect.
3. Romney will use conservative judge nominations, corporate tax cuts, Dodd-Frank repeal (does anyone understand it anyway?), and estate tax repeal to try to keep the base in line. Democrats may end up less happy than they expect.
4. Medicare won’t be touched, not fundamentally. There is some chance that a “twenty years from now” plan is passed (remember Waxman-Markey?), yet without any secure mechanism for commitment to make the actual cuts.
5. I worry if Obama wins on a platform of envy and anti-rich sentiment; such ideas rarely translate well into policy. If Obama loses, future Democrats will continue the cash goodies they deliver to constituents but fold on a lot of regulatory issues (don’t want to appear “anti-business”), and they will pay greater lip service to Deficit Commission recommendations and the like, while insisting that the governing Republicans take the heat for an actual budget deal. It is a much better outcome if Obama is re-elected from a promise to govern as a moderate and a fiscal conservative. So far I don’t see that as the Democratic strategy, so I am more worried about an Obama re-election than I used to be.
As noted, those are very rough predictions and I don’t have much faith in them, but they are my best guesses.
What else can Karl Smith get me to do?
Why not treat debt and equity the same?
Varun, a loyal MR reader, asks me:
I do have a fairly simple question on tax policy I’ve never really seen a good answer to: Why do we treat interest payments differently in terms of taxation? Why are interest payments tax deductible?
Clearly a zero corporate tax rate is best, but why do we offer tax shields for highly levered companies? All of private equity, and much of banking etc. is built on this tax arbitrage. Wouldn’t treating interest payments on par with dividends and corporate profits (hopefully at a lower tax rate) unlock a great deal of value, drive an increase in (stock) investment, while significantly un-levering businesses? Why do we borrow when we can seek investment?More importantly, isn’t it odd that few advocate such a simple policy change: to treat debt and capital investment identically.
Contrary to common impression, the tax deductibility of interest payments does not give a tax advantage to borrowing, not if the return to savings is taxed. What you save by borrowing and writing off interest payments you pay back tax on your more liquid asset holdings; admittedly there are complications and wedges when lending and borrowing rates are not the same. Therefore tax-deductible interest payments makes tax law roughly neutral in intertemporal terms, with lots of qualifications tacked on to that claim, including the possibility that some corporations can avoid the taxes on liquid asset holdings altogether.
The tax deductibility of interest payments operates in a highly imperfect manner, but at its core it is a piece of what an ideal (roughly) neutral tax system would look like, not a deviation from such neutrality.
Assorted links
1. Review of Robert Levine’s Free Ride.
2. Timothy Garton Ash on Europe and the euro, and Pearlstein on corporate taxes.
3. Niall Ferguson may sue Pankaj Mishra.
5. Orbit baby: still, this will not realize the Coase theorem.
From the comments (Walpurgis Nacht)
Tyler Cowen November 17, 2011 at 4:39 pm
Piggy wants mood affiliation!
- G.L. Piggy November 17, 2011 at 4:44 pm
- Peter Schaeffer November 17, 2011 at 4:51 pm
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I don’t care about mood affiliation. However, Felix’s first chart is simply wrong. CP is “Corporate Profits After Tax”. FCTAX is “Tax Receipts on Corporate Income”. Felix thinks his chart shows “corporate income tax as a percentage of total corporate profits”.
It doesn’t.
- G.L. Piggy November 17, 2011 at 4:58 pm
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But just to be a little pedantic here, the frustrating thing – the part which spurred my need for mood affiliation – is that your position on corporate tax rates was brought up out of nowhere and then quickly qualified.
Laserlight November 17, 2011 at 4:45 pm
“Can we ever get a straight critique out of you”
Ah, you’re looking for Tyler the Ethnic Foods Critic. He’s down the hall to the left.
Italy fact of the day
A 2007 PwC/World Bank report tried to estimate the total net tax burden on companies in different countries, original study here (pdf).
Italy has a total net, real corporate tax rate of 68.6 percent, see p.30 for the derivation and the list of all the constituent taxes, such as stamp duties, chamber of commerce duties, real estate taxes, fuel taxes, and regional taxes, as well as the more traditional corporate taxes and taxes on the employment of labor. (NB: not all those taxes are enforced, or borne by the corporation, still it is a grim picture.)
That’s the worst in all of Europe, see p.33.
On p.34 you’ll see the numbers for Africa, somehow Democratic Republic of the Congo gets above three hundred percent. There is much of interest in the entire study.
For the pointer to the study I thank the excellent Economic Lessons from Scandinavia (pdf), by Graeme Leach, from the Legatum Institute.
Second thoughts on Ireland
Irish political economy seems to be falling apart in front of our eyes and the bond market isn't so happy, even after Ireland accepted the EU/IMF bailout. That would appear to be political risk. Maybe there won't be a happy ending even in the short run.
Here is Thomas Friedman, a number of years back, touting the wonders of the Irish model. Cato and Heritage made similar claims. What are we to make of this broader span of Irish history? I see a few candidate views, not necessarily mutually exclusive:
1. The Irish had some excellent economic policies, but they needed to regulate their banks more. They were simply too optimistic and too sloppy.
2. Irish troubles could have been contained, at some point over the last two years, had Ireland not been on the euro. They would have devalued, defaulted, and had a rapid bounce back up, within the next three years.
3. Ireland never should have guaranteed the liabilities of its banking sector. Indeed, Ireland (as New Zealand did long ago) should have encouraged larger, more diversified foreign banks to dominate its financial sector.
4. Irish troubles are intimately connected with low corporate tax rates. Revenue starvation induced the Irish government to court and tolerate a real estate bubble. One claim is that Ireland relied too much on property taxes.
5. The good and bad policies are a bundle of sorts, and Ireland needed the mix to rise from squalor and the dominance of anti-commercial interest groups, no matter how painful the present day may seem. I recall vividly, growing up, that Ireland was thought of as not much more than a Third World country.
6. We are overreacting to the Irish failure. It is one of the first European dominoes to fall, but over time many different policy models will look like mistakes.
What other candidate views are there?
What is the incidence of “game”?
You know, "game," the use of signaling tactics to persuade, nudge, or trick a woman into treating you like a higher status male than otherwise would be the case.
Let's assume that game advocates are correct that, at current margins, "game" can yield the individual gamer higher returns without having to pay an offsetting price in terms of greater expense, less pleasant conquests, etc. and thus game is a net gain for the individual practitioner. Maybe not, but let's say.
Let's also say that any particular game tactic won't work on all women, even if you think that some form of game will succeed, if you know enough about the woman or have good enough intuition. In other words, you have to pick a strategy and aim at a sector but can't target all types of women at the same time. I don't think it's unfair to ask for that assumption back in return.
Why am I suddenly thinking about the tragedy of the commons and the Harberger corporate taxation model?
If there is no price mechanism to choke off the returns from game, the implied result is the crowding of men around each group of game-ready women. Over time, the average returns of game are competed down to…by the typical equalization assumption…the returns of non-game.
Which men end up better off? Ask: would you rather "buy" in a market where there is an equilibrating price, or in a market where there is no price but lots of crowding? Men with a relatively high tolerance of queuing should prefer the market without a price, namely the gaming scene. In the markets with prices, you can be pretty sure you get what you most prefer, that is by paying the price. (I'm not talking about prostitution, I'm talking about broader mating markets where you have to be something or give something to get something.) Non-gamers therefore dislike queuing, know what they want, and recognize the trade-offs in succeeding.
Oddly, gamers themselves might be better off if game "worked" by spending a lot of money buying women drinks (this seems not to be the case). It would then return to being a market with an equilibrating price, which is maybe where it is headed anyway.
If circumstances exogenously shift an extra man into "game," who loses? The other men playing game, who now have higher queuing costs. Who gains? The non-gaming men who pursue the women who have been abandoned by the new, marginal gamers.
There are comparable propositions about free roads and toll roads. Let's say you have a pay road and a free road, covering the same route. Usually the move toward a social optimum involves a tax on the free road. In other words, social norms against game benefit the practitioners of game by limiting crowding. In contrast, spreading publicity about the potency of game benefits the non-gaming men.
If gamers are disillusioned romantics, the women who are courted by sensitive romantics also lose when there is a shift of male effort into game. Those women now find there are fewer bids of truly romantic interest. Consistently romantic men, who do not grow disillusioned and shift into game, will gain through superior selection and more favorable terms of trade.
When will we know if Irish pre-emptive fiscal austerity is a failure?
Brad DeLong asks:
When would it be time to judge the Irish experiment in preemptive fiscal austerity to be a failure, Tyler?
The immediate question is whether Ireland had a choice in the first place. When it comes to total external debt, private plus public, Ireland is in one of the most desperate situations. (Be careful, though, some published figures include financial institutions to which the Irish government has no real liability and thus overstate Irish external debt by quite a bit). Ireland doesn't have the same flexibility as do Germany and the United States, nothing close to that. Read this article for an estimate of the change in primary fiscal balance required for Ireland; it's scary and doesn't indicate a lot of flexibility, which supports the conventional wisdom on Ireland, from the OECD, the European Commission, from Ireland itself, and arguably you add the IMF to that list as well.
Furthermore, Ireland as a small, open economy experiences a relatively high degree of fiscal leakage.
By the way, you shouldn't simply assume that the initial fifteen plunge in gdp was due to fiscal caution; Ireland was after Iceland perhaps the most overextended country in the crisis.
Here's a Morgan Stanley analysis of Ireland, which basically suggests "it's complicated." It also suggests a reasonable chance the current strategy will work out OK. It is complicated, and the mere fact that spending is a component of national income accounts doesn't mean that more spending is always a good thing.
Ireland in fact has done a negative fiscal stimulus. Earlier, Ireland made the mistake of joining the Eurozone. See also this study of Ireland, 1987-89, an earlier decisive and successful fiscal adjustment, in the days of the Irish Punt. The Euro today makes matters harder for Ireland, yet that doesn't imply they have greater license to spend today, in fact it can imply the contrary.
Paul Krugman pointed out that the fiscally tighter Ireland did not have a better CDS price than the more wishy-washy Spain. Yet Ireland has a bigger external debt problem, may be less protected by "too big to fail," is a smaller nation, and has less control over its destiny; the (roughly) equal price may reflect what is a superior Irish effort. In any case, Spain is hardly a walking advertisement for not going the Irish route.
The Irish also hope that whatever output they "leave on the table" today, they can make up with Solow catch-up growth.
If you would like to read a brief on behalf of Irish stimulus, try this. The author admits that Ireland would have to significantly raise corporate taxes, a former linchpin of its growth (whether you think that efficiency-enhancing or international rent-seeking, it is still true). Is it worth it? How much would such a policy damage Irish growth and credibility?
Kevin O'Rourke also has good but scattered writings on the topic of Irish stimulus. His first preference is greater fiscal federalism within the EU. Last month he also wrote that, lacking such a reform, Ireland had no choice.
This June, Irish consumer confidence hit a three-year high. Here's one estimate that wages have been falling four to five percent a year, and will continue to fall, plus the Euro has been falling. You could argue there has already been an adjustment in the twenty-five percent range. None of that is proof of recovery, but there are some green shoots. Here is the very latest report, indicating that economic growth may be resuming; admittedly it's just a forecast from the government. Exports are showing growth and retail sales are rising slightly.
The Irish Times reports today: "For the first time in three years, there are now more reasons for hope than for despair. This week a raft of indicators, when taken together, give grounds to believe that the foundations of a jobs-generating recovery are falling into place."
Do interpret that with extreme caution. For various debates, follow The Irish Economy blog, including in the comments.
On these critical questions, in the pro-stimulus for Ireland posts, I don't see a level of detail which would rebut these quite mainstream, not-emanating-from-the-gamma-quadrant opinions — that the Irish did more or less the right thing in a very unpleasant situation.
The Irish experiment remains an open book. In the meantime, it's simply not true that the pre-emptive austerity advocates are committing some kind of economic malpractice. Three years out from now, let's compare Ireland to the other PIIGS.
Yes, I do. Just once!
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