Friday, January 13, 2012

Abolish the Corporate Income Tax--what do you think??

I have heard a lot of pleas to abolish the corporate income tax over the last forty years. Most of them are premised on the burden of double taxation of corporate earnings: once when earned by the business and a second time when they are distributed as dividends to shareholders.  Supposedly this double whammy reduces investment and ...(you can fill in the blank). That argument has never carried much weight with me because many companies don't pay much or any dividends.  Furthermore, much of the dividend stream is paid to pension funds and other recipients that further defer or entirely avoid the second round of tax.


My problem with the corporate income tax is the strong incentive it gives to debt finance rather than shareholder equity.  What would happen if we abolish the 35% Federal tax on company profit but tax dividend income and capital gains on shares sales as regular income in the hands of the recipients?  Dividends paid to foreigners would be subject to a withholding tax. This change would put a lot of corporate treasurers, accountants and attorneys out of work.  Ditto for auditors, bankers and financial advisers.  In the short term there would be a spike in the unemployment rate.  But all of those people are very clever and would quickly find jobs during real work.


WHAT DO YOU THINK?


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Highly recommended film: Margin Call starring Zachary Quinto, Stanley Tucci and Kevin Spacey--a fictionalized account of the fall of Lehman Brothers.

Wednesday, January 11, 2012

Crash Course in Monetary Policy: You will be tested

OK, I'm weird.  I think this discussion between Scott Sumner of Bentley University and Russ Roberts of George Mason University is fascinating.  To quote the blurb on the web site "Sumner argues that monetary policy has been too tight and helped create the [current economic] crisis. He disputes the relevance of the so-called liquidity trap and argues that aggressive monetary policy is both possible and desirable. The conversation closes with a discussion of what we have learned and failed to learn during the crisis."


If you are a glutton for punishment you can take a look at Sumner's blog The Money Illusion.

Monday, January 9, 2012

Straight Talk--Passionate but Grounded

The quality of public discourse in this political season is shocking--but you knew that already.  The Rs are speeding toward the right edge of the flat earth they believe in.  The two Republican candidates that have the most well thought out and consistent platforms, Ron Paul and Rick Santorum, are also the most extreme.  At least you know where they stand and they have spent some time doing their homework.  Some of Santorum's ideas about social programs to strengthen the family are down right progressive.

The Democrats are laying low and enjoying the artillery duel among the Republicans but haven't brought anything new or interesting to the discussion.  The conservative wing of the Republican Party has successfully shifted the location of the whole political discussion so far that even Democratic policy positions fall to the right of 1970s Ripon Society Republicans.

So it was truly refreshing to discover a December 5 lecture by Jeff Sachs on the London School of Economics web site.  Sachs summarizes the ideas in his most recent book The Price of Civilization: Reawakening American Virtue and Prosperity.  In his long and very high-profile career in economics and public policy Sachs has had little to say about US domestic affairs until now.  Even if you are not a fan of Sach's earlier proposals about economic development and foreign aid you will find this talk well done and thought provoking.