Tag Archives: Tax Cuts

HOT LINKS 11/22/10…

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.

1. The rapid declawing of the debt-ridden Celtic Tiger should spell the demise of supply-side economics—especially for Congress

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.


HOT LINKS 07-08-2010…(get them while they’re hot)

Okay, so I already failed in my attempt to link to a couple of good articles daily. That is never a good sign. I think I’m going to change up the format a little. I’m going to choose the top 3 articles I have read and go with that.

3. Tax Hikes and the 2011 Economic Collapse

Arthur Laffer- originator of the famous Laffer Curve– makes the case that the surprising amount of growth we’re seeing in 2010 is simply the result of individuals rationally shifting production, consumption, and investment from 2011 into 2010 because of the upcoming expiration of the Bush tax cuts next year. Because people react to incentives, the knowledge that next year the capital gains tax, for example, will go from %15 to 20% is making it likely that people are doing all they can to maximize their return this year before the tax cuts expire. Because of this, 2011 could be an especially bad year (bringing on that whole “double-dip recession” thing) as we see falling growth and growing unemployment thanks to the tax hikes.

2. The Education Debacle of the Decade

Bob Ewing gives us a perfect example of why public education (or, as I prefer, government education) isn’t really about education but, rather, about politics. The OSP (Opportunity Scholarship Program) gave Washington D.C. parents $7,500 each to send their children to any school they chose. The program is a resounding success and parents loved it. So what happens? The Teacher’s Union crushes it because it supposedly takes away money from public schools (which isn’t true, as explained in the article). Under markets- cooperation ensues. Under government- people vie for ways to use the state to push their agendas on everyone else.

1. Are Stimulus Skeptics Logically Incoherent?

Greg Mankiw responds to Paul Krugman on how the stimulus could actually be reducing aggregate demand in the near and long-term. Basically, the more the government borrows to spend, the higher future taxes have to be in the future. If future taxes are expected to be high, investment today looks a lot less inviting. Now, you may say this is contradictory to Laffer’s theory which says higher taxes in the future leads people to shift production into the near term in order to maximize the return now rather than in the future when the higher taxes are in effect. The careful distinction to make here, I think, is that higher taxes in the future lead to a shift in production and investment into the lower orders of the capital structure (to put it in Austrian terms). In other words, higher taxes in the future lead people to consume more now (which leads to an increase in output and higher profits), but businesses won’t be investing as much in long-term projects.