The Real Effect on Corporate Taxes

Goldman Sachs has run the numbers. Over the coming decade, the GOP’s proposed reduction in the corporate tax rate from 35 percent to 20 percent would reduce actual corporate taxation by around 3 percent. That’s because there’s a big gap now between the statutory rate and the effective rate. Corporations tend to have top-drawer tax lawyers and accountants. Why haven’t we heard more about this? Politics, I’d say. The GOP wants to get maximum credit for cutting taxes to goose the economy (despite the lack of evidence that putting big bucks in corporate coffers now would do that), and the Democrats want the GOP’s gift to big corporations to look as enormous as possible.

Real Tax Reform

Can you describe what for you would be the ideal approach to taxation? My working hypothesis is this: The ideal approach to taxation eliminates all exemptions and deductions, sets rates as low as possible, requires everyone to pay at least something, requires wealthier individuals to bear a larger share of the burden, and makes participating in the system procedurally painless.

The GOP approach to tax reform is hardly reform at all. Its overriding objective is to lower the taxes of its donor class. We won’t get genuine movement of our system of taxation toward my ideal until we kick out the current Congressional leadership, replacing it with pragmatists willing to work across the aisle and pay attention to nonpartisan experts.

See generally TR Reid, A Fine Mess (2017).

Not Buying the Reaganomics Snake Oil

Are you old enough to remember the Reagan years? I am. And I don’t buy the GOP dogma that Reagan worked some miracle of prosperity by cutting taxes dramatically. What I remember is that in the Carter years we were in the midst of a period of high inflation produced by Vietnam War spending and the OPEC oil shock. What I remember is that Jimmy Carter appointed Paul Volcker to head the Fed to cause an intentional recession to break the back of the inflation. What I remember is that Volcker did that. What I remember is that Reagan then had the benefit of being handed an economy with the tailwinds of the dramatic post-inflation dropping of interest rates and the concomitant release of capital to address pent-up demand. And even if the Reagan tax cuts helped propel the economy then, that doesn’t mean tax cuts now will have any meaningful impact on jobs. Apples and oranges. There’s zero evidence of pent-up demand that will propel job growth when corporate taxes go down.

The Long Con of the GOP on the Budget

This is not something the GOP came up with yesterday or last year. This has been the grand strategy — the long con — of the party for decades and beyond: Cut taxes on the wealthy, ballooning the deficit. Then, when the bills come due, sound the siren that social programs for the middle class and the poor are to blame for the red ink and must be cut, cut, cut. The question is whether the jig finally will be up for this switcheroo in 2018, or whether enough of the electorate will be fed up with it to sweep the party from power and let the Democrats have a go.