Put aside the ballooning deficit. Why, exactly, is it a bad thing for a tax cut to “[Give] Business More and More,” as the New York Times so “neutrally” put it? Who creates the jobs? Who does the research? Who builds the buildings? Who pays the pensions? What is in your retirement fund?
We need to get past this notion that a tax cut for business is inherently worse than a tax cut for some mythical category of middle class voters, which has been a fixture of Democratic rhetoric since William Jennings Bryan. Businesses are not evil; corporations are not the enemy. They are the means by which the world moves. As they go, so do we.
Businesses are not evil; corporations are not the enemy.
It’s not all that cut and dry. Coporporations, like, oh, say, Viacom or Sinclair (you can read Viacom either way you like there), are seriously influencing elections through means that suggest their interests are the same as their customers. The corporations like to suggest that what’s good for them is good for their employees and customers, but in many ways that’s simply not true.
Let’s look at priorities: As an individual, your priorities are most likely ranked something like this (with tools used to gain/protect them in parentheses)
1. Health of you and your family (solid health insurance, stress reduction, safe working conditions)
2. Decent standard of living (good wages, good benefits, reasonable work schedule)
3. Fulfilling career (advancement opportunities, workplace commaraderie)
Note how each of those things in parentheses can be a drain on a corporation’s priorities (primarily good return or investors, increased market share, etc.).
So in a sense, the individuals and the corporations’ priorities are at odds with each other. In a sense, they are enemies.
My personal preference is to eliminate the corporate tax entirely.
But since you’re asking, the problem is that industries with well-heeled lobbies get preferential treatment. Especially if they’re in Denny Hastert’s district. It’s legalized bribery, and it’s wrong.
Is inherency even a valid notion in matters of policy? I don’t think so. For me, the question is not whether tax cuts for tax-paying entity A are “better” than tax cuts for tax-paying entity B. It is, what is the purpose, and which is more effective to that purpose?
I don’t know what’s happened to the oversupply of production capacity since the recession. If there’s still an oversupply, I don’t see how tax cuts for business are, generally speaking, going to give us a whoop-and-a-holler lot more jobs than, say, tax cuts for people who are going to go out and spend it right away. If the economy suffered from massive underinvestment, that would be an argument in favor for tax cuts for business.
“What’s good for GM is good for the country.” Uh, right? Actually, there are two groups of questions in the post:
“Who creates the jobs? Who does the research? Who builds the buildings?” The people who work for the company. The same people who cost the company in payroll taxes, employer-funded health-care plans. People who may not be able to afford joining the ownership society. How much do they benefit from the tax cuts? (It’s a debatable point.)
“Who pays the pensions? What is in your retirement fund?” Well, pensions require a sustainable company. And the retirement fund goes to stockholders — people who don’t provide any labor but are willing to park some of their assets in ownership of the company. Not saying that’s not a vital role in capitalism, but how do you balance the priorities of the various stakeholders (stockholders, bondholders, employees, customers, community)?
Little time to respond, but let me quickly address Mark‘s point:
“Who creates the jobs? Who does the research? Who builds the buildings?” The people who work for the company.
It is self-evident that a corporation acts solely through its agents. But the “people who work for the company” would not be creating the jobs, doing the research, or building the buildings unless they were allowed to be organized as a corporation. Saying, “people who work for the company” is a dodge, not a response.
I agree with Nicholas Dronen: I don’t think that, inherently or “other things being equal”, corporate tax cuts are better or worse than individual tax cuts. As far as I’m concerned, everything depends on what you’re trying to achieve and what changes in tax policy are likely to achieve it, and I am not particularly biased, as far as I know, in any particular direction. (Well, on reflection, there is one tax cut that I am dead set against; but that’s the repeal of the estate tax, which is not relevant here.) The main reason my last two tax posts have been directed against corporate tax cuts is that those have been the last two tax cuts stories, period.
At the moment, I think that doing something about the deficit is enormously important, and so I am, in general, against any tax cuts that don’t have something really, really compelling to be said for them. Moreover, insofar as I understand our current economic situation, I think that we have enough capacity and insufficient demand, and moreover that the demand we have had is way too dependent on consumer indebtedness. For this reason, if I were somehow forced to design a tax cut, it would be targeted towards low- and middle-income individuals. In different circumstances, I would feel differently.
In general, though, I think that a lot of Democrats have gotten over the idea you’re criticizing. At least, that portion of Democrats that actually has developed views on tax policy.
I should also say that if I were going to support a tax cut in the current circumstances, it would be one that was intelligently designed, not one that looked as though every indefensible tax break that any Congressperson wanted was thrown in without rhyme or reason.
Isn’t it time to “put aside” the myth that these are “tax cuts”. Reducing taxes on any constituency is not a “tax cut” if there is no offseting budget reduction. Once again this is a “tax shift” from one tax payer to another future tax payer. I don’t think you can put aside the budget deficit in any tax discussion, especially when the “tax shift” target specific industries for benefit.
Hey, I think you just unintentionally wrote the Bush-Cheney 2004 re-election slogan: “As [corporations] go, so do we.”
Yes, nothing says free markets like the bipartisan larding up of a last-minute bill with targeted pork while 11 of 13 appropriations bills are stalled.
Putting aside the deficit, what’s inherently wrong with this sort of tax cutting is the earmarking. If it was an across the board cut in the corporate tax rate, or the inclusion of some broadly defined deduction (or credit) that could plausibly be argued to provide an economic stimulus – that would be one thing. Instead, we have an implicit form of goverment industrial planning based on political influence.
To oversimplify, the problem with shifting the tax burden to labor from capital is that you disadvantage labor. Tax something more, and you get less of it.
My personal preference is to eliminate the payroll tax entirely.
As a matter of economic policy, the economy is driven by middle class consumer demand more than any other factor. Policies that stimulate the middle class over other economic groups always deliver the biggest bang for the buck. This, by the way, is one of the major flaws of Bushism economic policy, and with trickle down in general.
The selective corporate tax cuts in the last package were largely give-aways to friends. Hard to see it as much more than that.
I agree with your underlying premise — that corporations should not be demonized. But they certainly don’t need more favors.
First of all, it is silly to evaluate any tax in isolation. There are always things wrong with it, as well as benefits. The government needs money and it has to come from taxes. Let’s understand that. So you really have to consider any tax as part of a portfolio of taxes. The “divide and conquer” strategy of tax reduction relies on this fallacy.
And if you really want to disregard the impact on the deficit you have to assume the revenue is going to made up by increases elsewhere in the tax system. Those will, in all likelihood, fall on the middle class that you dismiss. In any case, I think that in advancing your argument, you have an obligation to tell us where the lost revenue will come from.
who creates the jobs
Businesses hire people, sure. But they won’t hire them unless there’s a demand for the products. The whole “the wealthy (or corporations) create the jobs” argument that we hear repeatedly is very far from the whole picture. Nobody builds a factory, or a building, if there are no customers. And if individuals pay more taxes then they buy less stuff.
who does the research
Yes, it’s done in corporations, but by individuals. But it’s wrong to dismiss this by saying that of course corporations work through their agents, as though the agents are an undistinguished mass of readily available drones. Not so. The research is done by scientists and engineers and technicians who require training. So if we want more research done perhaps it would be wise to funnel money into education, rather than to corporations.
who pays the pensions
The corporations. But are you seriously suggesting that companies will increase pensions out of the goodness of their hearts just because they get a tax cut? That doesn’t seem right to me.
My overall point is that the assumption that reducing corporate taxes has all these benefits is invalid. It does have some,sure, but nothing like what is claimed.
Remember that there is no rule that profits have to be reinvested. There are other things to do, like raise CEO salaries or pay out more low-tax dividends to the aristocracy.
To answer one of Von’s questions, my IRAs, my kid’s education IRAs, my wife’s Thrift account at work, and accounts outside of the various tax-avoidance schemes concocted in the past two decades (yes, I’m perfectly aware of the idea that tax-sheltered accounts may provide an incentive to save; I’d have saved anyway. Why is everyone else merely Pavlovian?) are invested in the stock market in various forms.
Yes, I know corporate taxes are passed on to me. Good.
Yes, I know I’m a hypocrite for using tax-sheltered accounts. But I’m not paying taxes if no one else is willing. If folks want to take the tax rates to zero, go for it. Don’t expect liberals to be suckers.
You see, Von quoted “(G)ive business more and more” Well, the first more may have been O.K.. Maybe even the second. But it’s all the other “mores” that give me the feeling (rock-solid conclusion really) that there are not enough “mores” to fill up anyone.
When Neil Cavuto on FOX says about every tax cut idea that comes along, “Give it back”, I say why don’t I “get it all back”. Maybe that would be a winning idea for a nationwide, peaceful tax revolt post-election for Liberals. You want a flat tax? Or no tax? I wonder which one all of those tax-haters out there who have been pandered to by the Republican Party all these decades might go for.
In case you are wondering, I don’t think removing the poor from the tax rolls is such a hot idea, either. That only gives the lucky duckies at the Wall Street Journal editorial page the idea that maybe they should be removed from the tax rolls, too. Then who is going to pay for getting our troops home from Iraq, whenever that happens?
If we give the corporations (perfectly moral entities, unless they behave immorally) yet another “more”, the game for Grover Norquist is to come back next week and say, hey look, they got a tax break, so should individuals, etc. The whittling away continues. As do the tax revenues. To the goverment. Which is the target of every “more”.
Pay your taxes. And I’ll keep paying mine, which I hope are raised soon, in part, to “secure the homeland”.
“some mythical category of middle class voters”
The middle class is mythical? What exactly are you trying to say?
The fact is that supply side economics is garbage (garbage is the word for the day. If you say it enough, Chairy will dance). It’s a religion, not a science, and it violates the most basic laws of economics.
It is useless to fund the supply of something previous to there being a demand for it. It has been proven again and again that the engine of the economy rolls when there is a large base of people with a lot of disposable income. The idea that you can pump money into the corporate coffers and people will magically just buy these new things is asinine. Further, money is inherently devalued by concentration. Business is painfully inefficient with money because it has so much of it. The canonical steak dinner and lap dance on the company dime can probably be measured in percentage of GDP. If you instead return that money back to individual citizens, who will manage it more efficiently and more in accordance with their preferences, capitalism will take care of itself. Business is also legendarily unethical with money.
Business is not the enemy. But nor is it the protagonist. It is the inevitable outcome of a large well-funded populace with desires in a capitalist economy. Skipping the consumer and injecting the money straight into the business is an absolute perversion.
Should read: “As does the whittling away of the tax revenues.”
Also “government”. Unless someone prefers it to read “gummint”.
Also, one could substitute “government” for “businesses” and “corporations” in Von’s perfectly reasonable original post:
“Businesses are not evil; corporations are not the enemy.”
Speaking as someone who owned his own business and paid employees and dealt with all this crap, I can tell you that it isn’t a “hate business” thing that Democrats have.
You have to look at where the money is going. Businesses are one of the primary beneficiaries of tax money spent. Again, speaking as a businessman, this is pretty obvious and perhaps not so obvious when you aren’t one. So saying that you’re “giving the money back to them” is just ridiculous. After all, we still have to pay for education, health care (a HUGE problem for businesses, I might add), sewer systems and all the other things that primarily serve business interests.
And if the money simply gets shuffled into executive bonuses and stock dividends, then zero jobs are created and no money is sent back through the system through the bulk of workers.
If you want to actually do a good job here Von, you’d analyze where the money is going and what’s happening with it. For all you know, it’s being sunk into fat bank accounts in the Caymans or dumped into industies and businesses which should have died long ago in anything approaching a “free market”.
I’ll take a bit of a different approach.
what are corporations? are they only a nexus of various contracts, or are they independent legal entities? Is there a there there?
I think that it’s a little late in the day to argue that corporations aren’t “persons” for purposes of taxation. They sue and are sued in their own name; they enter into profit-making transactions; they are held liable under the law for their wrongful conduct independently of the wrongful conduct of their agents.
So the real question, then, is what is the most efficient tax code? How do federal, state and local governments best obtain the receipts needed to provide the requested govt services?
The fiduciary obligation of a business to its shareholders should make a business an amoral entity. While us humans are in theory capable of altruism, a business, as such, is not.
Here’s a wild thought: A business should not be allowed to lobby. Any lobbying done on behalf of business must be made by individuals out of their personal finances. Why not? Government exists to serve living people, not ficticious legal entities. Businesses by their very nature are incapable of advocating for “public” policy.
cheers
Francis
I appreciate the reactions, particularly since I’m running around on other matters and can do little more than cherry-pick points to respond to.
First, as to Edward:
Note how each of those things in parentheses can be a drain on a corporation’s priorities (primarily good return or investors, increased market share, etc.).
No, not at all. A corporation is also a competitive player in the marketplace, and it is in the corporations rational self interest to maximize its labor gains. It’s actually in the best interests of most “skilled” corporations to provide a well-rounded and competitive labor package.
JerryN‘s point is well-taken.
Sidereal:
It is useless to fund the supply of something previous to there being a demand for it.
This fundamentally misunderstands microeconomic theory, as well as supply side theory. The goods in question are already existing in the marketplace. Supply side policies seek to make it more attractive for a business to produce more. If you increase the supply of a good, microeconomics teaches that the number of goods in the market place will rise and the price of the good will fall.
On the other hand, microeconomic theory teaches that as the demand for a product increases, the price of the product will be bid up by buyers and supply will (eventually) increase to match the demand. A demand stimulus thus increases the number of goods available at the same time it increases the price of the goods.
You can see, I suspect, why many prefer to stimulate supply rather than demand, if only from the viewpoint of pure microeconomics theory. (And you’ll also probably infer why a negative “supply shock” — such as the oil crisis in the late 70s — can be so damaging. Unlike a demand shock, which reduces the number of products and decreases the price, a supply shock both decreases the number of products and increases the price. If the price increase is capped, the result is long lines at the gas station.)
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My apologies for not responding to the rest. I’m out of time.
“Supply side policies seek to make it more attractive for a business to produce more.”
I’m aware of Say’s law, and at the risk of diving too far into a field that is not my forte…
The argument essentially boils down to capitalization leading to employment (except you can call employment ‘labor supply’ if you’re feeling dry). First, enhanced productivity means that capitalization of the means of production does not proportionally lead to capitalization of employees, which introduces drag and inefficiency into the system that transforms supply into demand. Second, if the goal is to capitalize employees, you can do so directly at much greater efficiency. As I’ve mentioned, businesses are horribly inefficient at money management because higher concentrations of it reduce the its functional value (with the caveat that many tasks require higher concentrations of capital, no matter how inefficient it is).
The latter fact is one, I think, that gets underappreciated. Essentially, all money and value goes somewhere. Most conservatives seem to think that if it gets taxed it just goes into some vague black hole. But in fact the government does things with that money. . it employs people, buys things, props up the Taliban, and so on. The problem is not that the government eats money, it’s that a) there’s a serious question of whether it has the right to that money (e.g. is the fact that you can put something to better use a reasonable justification for taking it) and b) the government is superlatively wasteful and turning that income back into value. The latter is true not only because the government is so poorly run, but because it has an unimaginably massive concentration of wealth, which decreases its value.
Which is why I advocate dissipating wealth where at all possible. Not unethically (radical redistribution schemes), but in cases where all ethics are equal, spread the capital out, where it will be used efficiently.
If you believe in a progressive tax system, then business tax cuts will almost always be worse than cutting taxes for the middle and lower economic classes. Business tax cuts benefit shareholders, who are disproportionately wealth. Wealth disparity is far greater in this country than the worrying level of income disparity.
I thought supply-side economics was strictly macro? And anyway where does the incentive aspect of tax breaks come from exactly?
I’m fine with postulating less “friction” when you thumb the supply side of the scale than the demand side, since actual production leads in one case and lags in the other. But the tax breaks we’re talking about here are cold hard cash on the barrelhead, and have no inherent incentive effect. The only reason to spend your tax break giving someone a job or buying a piece of equipment is if that action has a better ROI to risk ratio than, say, currency speculation. Or back alley craps.
And there’s no evidence that recipients of these tax breaks are doing what’s theoretically expected any more than the last time we performed this experiment and duly recorded the (unsurprising) results. By way of contrary evidence I offer you both a net job loss, and an increase in the number of dollars represented by arcane, barely comprehensible financial instruments. As Hal points out, we need to look at where the money actually goes, not where we expect it to go.
This is why whenever I see economic theories that don’t correspond to something in ecology I get jittery and check my wallet. Implementing the actual Bush tax breaks to get the theoretical microeconomic benefits of supply-side incentives strikes me sort of like leaving piles of lox laying around the forest in order to encourage the bears to develop a taste for salmon.