Now that it is Thanksgiving break I find myself without much to do. So why not try blogging on a regular basis this week? I think I can handle that. I’ll begin this week with some articles I read this morning…
2. Obama Should Cut the Corporate Tax Rate
America has the highest corporate income tax in the world. Is this good for productivity? Not according to the OECD (Organization for Economic Cooperation and Development), which reported last year that the corporate income tax is the most damaging tax for long-run development (this may or may not be the original OECD study, but if not it looks close enough). America’s corporate income tax is 40% (that includes both State and Federal tax rates). The article nicely points out that since capital is relatively mobile, labor is going to end up taking the brunt of corporate tax rates. If you want to increase wages and productivity, lower tax rates.
Now, I may be misreading this article but it seems to me this fellow is mixing a few different points up. Basically, his main point is that Ireland was the supply-sider’s favorite example of success. Ireland cut its taxes, productivity surged, and everyone seemed happy. That is until it was revealed that it had some serious financial issues to deal with. So far so good. Nothing to quibble with here. So how did lower tax rates lead to Ireland’s financial instability? One would be tempted to say, “because they didn’t cut government spending along with the tax cuts,” but, according to his author, you would be very wrong. No, what led to all the problem’s was the deregulation during the late 90’s and early 2000’s that fueled the housing bubble which eventually collapsed into the world-wide recession we are experiencing today. Here’s where I am confused: What in the hell do lower-tax rates have to do with deregulation? They don’t necessarily imply one another. One can have lower tax rates AND sound regulation. In case the author didn’t notice, Ireland isn’t the only country that experienced a housing bubble, and amongst the countries that did, the regulatory schemes differed at times quite dramatically. The author tries to make the argument that lower tax rates ultimately led to the housing bubble and Ireland’s current financial predicaments. But I see no evidence for that. I haven’t really heard anyone arguing that lower tax rates led to the housing bubble anywhere. Most see it as either a failure of the regulatory systems in various countries, or foreign savings gluts, or central bank mischief, and so forth. Lower tax rates did not cause Ireland’s troubles.
Just Price 