How can you like that raging lefty, Barack Obama, my readers cry?
There are many things I don't like about him, I reply.
But as far as lefties go, he has the right sort of left-wing ideas; he wants to model America on Denmark, not Germany or Italy.
Today he's announced new details of his economic plan. They include an infrastructure plan which will undoubtedly do approximately nothing to increase the rate of economic growth (though it probably won't much harm it, either). But they also include a cause near and dear to my heart: simplifying and lowering the corporate income tax. Obviously, I'd be happier if he'd pledge to eliminate it entirely; I think what taxes we need should be raised through a simple, progressive income tax with few deductions, or Pigovian taxes. Nonetheless, it's a step in the right direction. And a rather brave step. American politicians find it politically nearly impossible to cut the thing, even though it's a stupid, wasteful tax. In the "Only Nixon can go to China" sense, probably only a politician like Obama can do something about it.
$20 says it's the first part of his plan to get cut.
I don't know if Obama is the douchebag or turd sandwich of this race, but it's clear we're not going to much better in a nation where most people buy into the idea that government spending for 'economic' reasons is a good idea.
If I preferred Denmark, I would move to Denmark. But the flow of citizenship applications is rather in the opposite direction.
How can you like that raging lefty, Barack Obama, my readers cry?
Um, because you're barely sentient enough to be embarrassed by endorsing George Bush, Jr (twice!), the Iraq Invasion, 2 x 4 comments, etc. and you think endorsing Obama will somehow make up for it?
No one wants taxes to be complicated. They got that way for a reason. People are smart and the taxers need to keep changing (and creating more complex) the system to stay ahead of the smart people. There are also unpredictable (and some predictable) consequences of major changes in the tax code (think about the mortgage interest deduction). Because the tax system is now so complex and politicians aren't the smartest people around, it becomes very challenging to get a political consensus since politicians can focus on simple changes that appear to affect the people that are paying their bills but have a much harder time getting a handle on the unintended consequences that might happen as the result of large scale changes. The uncertainty about these consequences and the law of incumbency = sinecure makes politicians very unlikely to make radical changes in the tax code.
"But they also include a cause near and dear to my heart: simplifying and lowering the corporate income tax"
So were you as excited when McCain proposed lowering the corporate income tax in JANUARY
http://www.bizjournals.com/phoenix/stories/2008/01/14/daily55.html
The combination of multiple Pigovian taxes (based on some approach to monetizing negative externalities) and Pigovian tax credits (based on some approach to monetizing positive externalities) should be a wonder to behold.
Bergamot,
If you modify your proposal by simply stating that it will not happen during an Obama presidency, then you can literally bet the ranch and not lose a single moment's sleep in the next eight and a half years.
I agree that corporate income tax should be lowered but eliminated completely? Stupid? Wasteful? Please. For every argument against corporate income tax, there are equally persuasive counter arguments. And if business owners don't want to pay corporate income tax they can always choose to operate differently e.g., via a partnership or an LLC. It is naive to think that we can abolish the corporate income tax and all us will live happily ever after. Additionally, tax policy cannot be determined in a vacuum as if the U.S. exists by itself. Making the U.S. a corporate tax haven (a la Bermuda, Cayman Islands, etc.) will seriously mess up our international trade and business ties.
If you want to avoid double taxation, a simple dividend tax credit available to all U.S. resident taxpayers (not to non-residents) might be adequate.
The reason to eliminate or cut the corporate income tax is that it creates huge incentives for financial engineering (dividends are taxed, other forms of corporate profit-taking are not, ergo every company starts trying to figure out how to handle their profits without paying dividends). Unfortunately, the reason *not* to eliminate or cut the corporate income tax is the same: if there are only personal taxes, with no taxes on corporate income, the next trick will be to get the corporation to pick up its individual officers' expenses as much as possible -- a case in point is the bath Qwest just took on an executive's house, $1.8 million expense now dividied up among the shareholders instead of being paid by the guy himself. There's no easy answer.
"most people buy into the idea that government spending for 'economic' reasons is a good idea."
Would you agree that if the government stopped spending money on the highways, that it would have no effect on the economy?
Megan, could you please provide a link showing that Obama includes “simplifying and lowering the corporate income tax” as part of his “economic agenda.” The closest that I could find was a WSJ interview (click on my name for the link) where he said he might be “open to it” when asked about it by a reporter but that’s pretty much a non-commitment rather than making it part of his economic plan.
Oh and as eccdogg pointed out, McCain came out for lowering the corporate tax rate from 35% to 25% back in January and unlike Obama doesn’t favor raising the capital gains and dividend tax rate. It seems to me that even if one agrees (as I generally do) that our corporate tax rate does more harm than good, a candidate who commits to lowering the corporate tax rate (which Obama doesn’t appear to have actually done unless you have a link I missed) but also wants to raise taxes on capital gains and dividends would pretty much negate much of if not most or all of the benefit of a lower corporate tax rate.
The answer to the problem of the executives looting the shareholders is two-fold. (i) Reform company law. (ii) Increase the range of crimes subject to the death penalty.
Ms. McArdle reminds me of the Communists of my youth. (Yes, children, there were real Communists then, and they even had a country of their own, called the Soviet Union.) Anyway, Party acolytes here in the U.S. would always be touting some tiny democratic event in Iron Curtain Countries. ("Last June, in the Workers Council election at the Lublin Steelworks, the Party submitted two choices, and let the workers choose freely between them! So there's huge progress being made in unifying socialism with true democracy.") Meanwhile, elections in the U.S. were considered a total sham, of course, and regarded with contempt. Let Obama mention in passing that he wouldn't oppose lowering corporate tax rates if it were accompanied by broadening the base, and Ms. McArdle goes into similar rhapsodies.
y81 reminds me of a child molestor.
Anyway, Megan supports a terrorist fist pounder!!!!!!1
It's so charming to watch otherwise inteligent and skeptical people obsess over and debate the fine details of Obama's supposed plans. A presidential race is tournement - someone's going to win it, no matter what. Actually getting anything done is quite a different matter.
I don't think it matters what Obama is for - it's highly unlikely that he'll have as much influence over domestic policy as Waxman and Rangel will have.
rickm reminds me of the kids who weren't allowed in our Gramsci reading group, because they were in the dumb group.
But they also include a cause near and dear to my heart: simplifying and lowering the corporate income tax.
Huh? Link, please!
I read through Obama's economic speech - and he doesn't say anything about "simplifying and lowering the corporate income tax".
Is it possible that Megan has simply mixed up McCain and Obama?
Don't worry, though. When Megan finds out that it is actually McCain, rather than Obama, who has proposed lowering the corporate income tax, she'll quickly abandon it as "a cause near and dear to my heart" - just like she abandoned free trade when Obama came out for renegotiating NAFTA. When it comes to Obama, Megan doesn't actually have any principles to fall back on.
Ah, reading through comments, I see Thorley Winston has got the link to what I assume Megan is referring - the WSJ interview.
So, let's see if I understand Megan's reasoning here:
Megan: "But [details of Obama's economic plan] also include a cause near and dear to my heart: simplifying and lowering the corporate income tax."
[McCain's policy: lower the corporate income tax rate from 35% to 25%]
[Obama's statement: "If we could eliminate loopholes in taxes, create a level playing field, then I think there's the possibility to reducing corporate rates." WSJ: Have you proposed reducing corporate rates? Sen. Obama: "We're still working with our team to take a look at that."]
Megan: And that's why I prefer Obama to McCain on corporate income tax rates. What a "brave step" by Obama! He's having his team "look at that"! So much better than McCain's actual proposal. Why would anyone want an actual proposal when we have Obama telling us his team in looking at it! And Obama is saying there's a "possibility"!
Diana wrote: "The reason to eliminate or cut the corporate income tax is that it creates huge incentives for financial engineering (dividends are taxed, other forms of corporate profit-taking are not, ergo every company starts trying to figure out how to handle their profits without paying dividends). . . There's no easy answer."
Try this for an easy answer! Tax land, not labor, income, profits, sales, etc. If we taxed land according to its value, people would pay according to the land they used -- land which is surely not created by any effort of theirs -- and there wouldn't be the same possibilities for financial engineering. You'd pay tax on the land you used regardless of whether you used it as an individual, a corporation, an LLC, or whatever, and how much you paid in dividend as opposed to interest or buying up your own stock. Also, you pay the same tax regardless of how much you produced or how many people you hired on the same land.
Land value taxation is the way to go.
Denmark doesn't matter, and hasn't since the Vikings. We're a worldwide empire that makes human history. I very much doubt that what works for a small country with no real problems will work for us. I'd be happy to be wrong.
Whatever good ideas Obama has, it's meaningless if he can't get it through a liberal Congress and an administration staffed with liberals who hate tax cuts for corporations. Bush had to fight to get his modest reforms through a Republican Congress, so what are Obama's chances?
I'm really pessimistic that anyone can get the federal government to do anything it doesn't want to do. It's just too big. Between the two candidates, I'd say Obama has a better chance, but... I'm praying for divided government so it at least doesn't get any worse.