Quotation of the Day…

by Don Boudreaux on August 16, 2011

in Seen and Unseen, Taxes

is from EconLog’s David Henderson who recalls how the Herbert Stein described the failure to understand that taxes on corporations are taxes on people:

I remember that in addressing the issue in the 1980s, the late Herb Stein said that it’s as if people think that if the government imposed a tax on cows, the tax would be paid by the cows.

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{ 143 comments }

vidyohs August 16, 2011 at 7:55 am

People who can’t grasp that a tax on cows would not be paid by the cows all seem to fall to the left of the rift. It’s why I insist that they have some sort of break in their brain that refuses them permission to think logically and rationally.

W.E. Heasley August 16, 2011 at 5:11 pm

“…tax on cows would not be paid by the cows all seem to fall to the left of the rift. “…their brain that refuses them permission to think logically and rationally“. – vidyohs

Firms are made up of a collection of households. The households are comprised of ownership households, management households, employee households, supplier households, and so on. That is economics. Hence the tax upon the firm is a tax upon a collection of households.

However, enter the politico. Politicos of many persuasions want you to believe the cow pays taxes! Certain politicos ply their trade based upon purposely spouting the illogical and irrational. By repeating over and over [and sometimes in purposeful unison] the illogical and irrational, well, the economically uninformed come to believe the cow pays taxes. The trick is to make the households believe they are disassociated, disenfranchised, and otherwise the opposite of the firm. That is, the politico wants the household to believe they are in fact the opposition of the firm.

Think for a moment about the famous Pogo quote: ”We have met the enemy and he is us”. It is a funny yet strangely true statement. The politico wants the household to believe in, buy into, and basically revel in being your own enemy. Hence James and Jane Goodfellow end up taxing themselves to death when in fact they think they are somehow taxing the evil spirit know as the firm.

Meanwhile, back at Camp Politico along the shores of Irrational Lake in the valley of illogical, the tax dollars come rolling in for the politico to grease the wheels of the great rent seeker machine. Ah the evil of it all!

vidyohs August 16, 2011 at 8:33 pm

Think for a moment about the famous Pogo quote: ”We have met the enemy and he is us”. It is a funny yet strangely true statement. The politico wants the household to believe in, buy into, and basically revel in being your own enemy. Hence James and Jane Goodfellow end up taxing themselves to death when in fact they think they are somehow taxing the evil spirit know as the firm.”

I agree, I was alive and old enough to read that original strip. That last sentence is why I object to people who propose changing the current tax structure without knowing what that structure really is, they knee jerk to conventional wisdom, and when I hear some fool clamoring for such things as a Consumption Tax or a Flat Tax to replace what we have now it drives me freaking crazy.

I am okay under the present voluntary system, but, the flat tax would have to be voluntary or it too would be unconstitutional, and the consumption tax I could not avoid.

Dan J August 17, 2011 at 2:18 am

I would like to hear more about why the current tax structure is better than alternative.
I clamor for a tax structure that is more uniform. One lowered to meet what is typically paid after all the exemptions, deductions, etc. Mostly, I would assume this lowers govt strength. With a more uniform structure and only charitable deductions allowed, one of the biggest lobbying reasons has been eliminated. One of govts greatest powers is reduced.
Also, that power is likely reason why it won’t happen.
The tax code is what is used to confuse public and give advantages to politically connected.

brotio August 17, 2011 at 3:21 am

Dan J,

Vidyohs isn’t asserting that the current tax structure is better than the alternative, he’s asserting that, unless proponents are very careful about what is crafted, it could be.

This quote is particularly relevant: I am okay under the present voluntary system, but, the flat tax would have to be voluntary or it too would be unconstitutional

Dan J August 18, 2011 at 2:29 am

So……Taking into account that we are asking the foxes to build us a better hen house to keep the foxes out, we are very likely to find that a new tax structure would leave open room for the foxes to enter and take their fill of poultry?
Or, under a very altruistic attempt, still the deceivers will find a way to pervert and corrupt and we may get worse, such as a piece of legislation like Obamacare, which is the devils work.

Speedmaster August 16, 2011 at 8:20 am

I’ve tried to explain this corporate tax business before to others and never did it well. This is a great example, should help. Thanks.

Scott Murphy August 17, 2011 at 7:39 am

Yeah, it won’t. Its like talking about how hard it would be to fit so many animals in an ark. Politics is religion.

vidyohs August 17, 2011 at 8:42 am

You got that right.

Greg Webb August 16, 2011 at 8:28 am

Thanks for the excellent quote, Don!

Jameson August 16, 2011 at 8:56 am

“There is no art which one government sooner learns of another, than that of draining money from the pockets of the people.” — Adam Smith

Russ Nelson August 16, 2011 at 9:06 am

That’s absurd. Everybody knows that corporations allocate the money to pay taxes completely out of their profits. They never reduce workers salaries to pay taxes. They never reduce their R&D to pay taxes. They never make worse products to pay taxes. They never raise prices to pay taxes.

Slappy McFee August 16, 2011 at 9:10 am

So you agree then, the cows do pay the taxes.

Cow August 16, 2011 at 9:30 am

I produce the milk and cheese that you eat on your cereal and pizza. Let’s see you do that.

Slappy McFee August 16, 2011 at 9:49 am

Actually, you didn’t produce either the milk or cheese I eat, but thanks for playing.

Sam Grove August 16, 2011 at 2:27 pm

Russ forgot to /sarcasm

Russell Nelson August 18, 2011 at 1:47 am

Oh, yeah, right, SUUUUURE I did.

Chucklehead August 16, 2011 at 6:45 pm

Then why do I always feel like I am being milked by government.

morganovich August 16, 2011 at 12:05 pm

russ-

leaving them less money to invest in growth, hiring, bonuses, dividends and the like.

i think you are really missing the boat there.

as someone who has run several companies, i can tell you that taxes are a big deal in both hiring and investment.

claiming giving up 35-40% of your profits does not hamper those things is like claiming that income taxes don’t reduce your consumption.

SheetWise August 16, 2011 at 12:17 pm

“claiming giving up 35-40% of your profits does not hamper those things is like claiming that income taxes don’t reduce your consumption.”

It business it just accelerates consumption — we must find things that have accelerated depreciation in the tax code and good residual value in the market to purchase for 60c on the dollar.

morganovich August 16, 2011 at 2:39 pm

taxes accelerate consumption?

what color is the sky on your world?

businesses exist to turn a profit, not invest in capital equipment.

SheetWise August 17, 2011 at 12:03 am

Of course corporate taxes accelerate corporate consumption — I would even go so far as to say, strategically, that’s why they’re there in the first place — to be avoided.

2.) Blue.

3.) Sometimes the tax code doesn’t allow you to divorce the two.

Ken August 16, 2011 at 12:14 pm

I can’t tell if this is sarcasm or not because there really are people stupid enough to say something like this seriously.

Regards,
Ken

raja_r August 16, 2011 at 12:24 pm

Yeah, Russ is being sarcastic. Read his blog if you want to know more about him

Richard Stands August 16, 2011 at 11:01 pm

Poe’s Law strikes again. :)

Russell Nelson August 18, 2011 at 1:49 am

Sadly, you are correct.

vidyohs August 16, 2011 at 9:14 am

Warren Buffet is a loony leftist. He thinks that billionaires don’t pay their fair share of taxes. If HE thinks that he is under-taxed then HE can write a big fat check to the IRS or U.S. Treasury. Billionaires should pay no taxes at all. Taxes are theft. When I become a billionaire, I will hide all my money in offshore accounts (like the big boys do now), so the the friggin’ govmint don’t get a red cent.

By the way, if the govmint reduces my federal pension check, I’m gonna get mad, and shoot some vermin in my back yard to take revenge. I love killing things.

Ken August 16, 2011 at 9:19 am

Vidyohs,

You are my hero!

Regards,

Ken

Ken August 16, 2011 at 9:26 am

The democracy will cease to exist when you take away from those who are willing to work and give to those who would not. -Thomas Jefferson

Buffet needs a lesson in democracy from one of the founding fathers of this country.

Regards,

Ken

Invisible Backhand August 16, 2011 at 9:40 am

Spreading disinformation again, Non Sequitur Ken?

“Status: This exact quotation has not been found in any of the writings of Thomas Jefferson. It bears a very vague resemblance to …”

http://www.monticello.org/site/jefferson/democracy-will-cease-to-exist-quotation

James N August 16, 2011 at 10:17 am

What is your point? Whether the quote is attributed to Jefferson or not, is irrelevant. The issue is whether the welfare state is a source of wealth or leading us down the path to ruin. I think the past 80 years have given us all the evidence we need.

Richard Stands August 16, 2011 at 11:04 pm

“The problem with quotes on the Internet is that you never know if they’re correctly sourced.”
- Abraham Lincoln

morganovich August 16, 2011 at 12:08 pm

ken-

i like this one:

“A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship.”

the sourcing is a bit contested, but the logic is sound.

with 51% of americans paying no net income tax, guess which stage we currently inhabit?

Ken August 16, 2011 at 12:15 pm

Neither of the replies to Vid are from me.

Regards,
Ken

Ken August 16, 2011 at 9:11 pm

Both of the replies to Vid are from me.

Regards,
Ken

DG Lesvic August 16, 2011 at 12:15 pm

Is the basic idea to take from the poor to give to the rich? Is it to take from the consumers to give to the producers, from the urban dwellers to give to the farmers, from the young to give to the old?

Whatever the branches, isn’t the root of the redistributionist appeal and indeed the whole appeal of “government” to take from the rich to give to the poor, isn’t it to reduce inequality?

Why then so much resistance here to the theory that it doesn’t reduce but increases it?

It’s a good thing you already know that two and two is four, for, if it were a new idea, you wouldn’t have anything to do with it.

DG Lesvic August 16, 2011 at 12:20 pm

And, by the way, I would have no quarrel with logical resistance to it, if you argued that the theory was illogical. But to say that it was irrelevant, or too difficult, or that you just weren’t impressed by it, is to say that you’re not serious about any of this.

morganovich August 16, 2011 at 2:42 pm

the basic idea is a free exchange of goods and services.

what you call “reduction of inequality” others call the destruction of growth, and they coercive theft of assets.

if you work hard and i sit on the couch, why am i entitled to redistribution from you?

the purpose of government is to safeguard the rights of citizens, not redistribute wealth.

John Sullivan August 16, 2011 at 2:49 pm

You know, DG, you keep pounding away at that theme, but you do it from the wrong persepctive. If you look at the UK right now, what you’re saying is completely true. In the long run, welfare makes the poor poorer. But the real reason is related to moral hazard, whereby individual responsibility is replaced by an entitlement mentality.

If the recipients of welfare worked hard in addition to receiving welfare, then it would be hard to argue that they’d be worse off. It would be like saying GE is worse off when they get government subsidies for light bulbs, that union workers collecting huge pensions at 50 are hurt by the advantages they were lucky to accrue for themselves, or that General Motors’ stockholders would be better off if they were allowed to go bankrupt in 2008. You see, these are all examples of welfare, and certainly, just like theft, the thief is not always worse off after successfully pulling off his crimes.

In spirit, we are all with you regarding the detrimental effects of the welfare state. Consider the resistance you receive when making your points as one of degree, rather than substance.

DG Lesvic August 16, 2011 at 3:57 pm

Sonofavich,

You are confusing your basic idea with your opponents’ basic idea. Whatever yours, or the Founding Fathers’, your opponents is the reduction of inequality. That is what you must confront, and what you and the rest of the fearless fighting libertarians here have been avoiding.

John,

You repeatedly miss the point.

You wrote, “In the long run, welfare makes the poor poorer.”

It makes them poorer right from the start.

You wrote,

“If the recipients of welfare worked hard in addition to receiving welfare, then it would be hard to argue that they’d be worse off. It would be like saying GE is worse off when they get government subsidies for light bulbs, that union workers collecting huge pensions at 50 are hurt by the advantages they were lucky to accrue for themselves, or that General Motors’ stockholders would be better off if they were allowed to go bankrupt in 2008. You see, these are all examples of welfare, and certainly, just like theft, the thief is not always worse off after successfully pulling off his crimes.”

Does that mean we should legalize bank robbery?

DG Lesvic August 16, 2011 at 8:45 pm

John,

I asked you,

“Does that mean we should legalize bank robbery?”

Your failure to answer the question was your acknowledgement that the effect of the policy upon an individual was irrelevant to its effect upon the group, and its effect upon a smaller group irrelevant to its effect upon a greater group, that those were all separate questions.

So, I ask again: regardless of its effect upon an individual or special interest groups among the poor, what was its effect upon the poor as a whole?

I submit that it was not only to make the poor as a whole poorer than they would otherwise have been, but poorer in proportional as well as absolute terms; and, furthermore, that that was the strongest possible argument, moral, political, and social, as well as economic, against socialist aggression, that, after that, nothing could be said for it.

That is the challenge that I have been putting before the Austrian School for decades now, and it longer comes as a surprise when it is evaded.

I would be shocked if it were ever faced.

kyle8 August 17, 2011 at 6:44 am

By the Way, GE stockholders were wiped out in the bailout. the only people bailed out were the Union thugs.

Gil August 16, 2011 at 9:53 am

Oh noes! The worst kind of leftist – a rich one.

Phil B August 16, 2011 at 2:12 pm

Buffett likes to propose higher taxes but never volunteers to pay more than he has to, why doesn’t he just donate the percentage above his current rate he thinks is fair? Also, if he thinks the government does such a great job with his capital why did he bequeath a majority of it to the Bill and Melinda Gates Foundation?

TDL0352 August 16, 2011 at 5:28 pm

I’m not so sure that Buffet is either all that loony or much of a leftist either. He is most assuredly an opportunistic elitist, however. He has chosen sides and sees advantage in feeding his fellow producers to the looters. My guess is that Buffet pays very little in taxes personally; he of course controls billions of dollars in assets and no doubt takes every privilege that offers, but how much income does he really claim? Aggressive book keeping and profit shifting keepeth the taxman away…

vidyohs August 17, 2011 at 6:20 am

TDL0352, et. al.

It seems to slide by people’s awareness that muirgeo, known by his more common appellations muirduck, muirhuahua, muiridiot, muirdouche, has taken to using other’s name to make his little comments because he knows he can’t stay with anyone in any kind of rational argument.

Yes, the doctor has been reduced to his childish tactics because at his very very best he can’t even reach the level of village idiot on his own merits.

muirgeo August 16, 2011 at 9:22 am

Somewhere in these post a year or two ago Cafe Hayek linked to an article showing individuals tax burden has INCREASED (federal,state, local,payroll). Mostly as corporate tax rates have decreased. The cut in tax rates and the changes in corporate tax law have been one of the most damaging things to our economy. Rewarding money hoarding over investing.

So again it’s such a simple thing for me to point to the current economy and ask, “How are those corporate tax cuts working out?” Yet I am the fool here amongst earnest “truth seekers” speaking seriously among an economy in ruins about how damaging high corporate tax rates are.

http://seekingalpha.com/article/78256-lying-with-charts-wsj-edition

Slappy McFee August 16, 2011 at 9:54 am

“an economy in ruins”

Ok, so how would higher corporate take the ‘economy’ out of the ‘ruins’?

Slappy McFee August 16, 2011 at 9:54 am

*higher corporate tax rates

muirgeo August 16, 2011 at 4:35 pm

Higher taxes on excess wealth corporate or private helps by basically re-circulating dollars rather then allowing them to be hoarded.

So those tax dollars go into building infrastrucutre and providing jobs. Those middle calss workers spend their money increasing demand. More people working means increased productivity.

Allowing excess ncome to be hoarded leads to stagnant demand and a stagnant economy with a bunch of the monet holed up doing nothing or looking for places to speculate.

Also, when we had higher rates people ddn’t take huge bonuses that would get taxed away. Instead they invested the money back into the companies creating more jobs and increasing producitivty

If you don’t like my explaination then you should be able to give a better one explaining the terrible economy in spite far less corporate taxes. And when subsidies and write offs are included we DO have lower actually corporate tax rates.

Economiser August 16, 2011 at 6:54 pm

I don’t know why I bother, but here goes:

Muirgeo, the wealthy generally don’t hoard money. They invest their money, usually in financial assets like stocks and bonds, that provides capital to productive businesses. The closest they come to hoarding is putting cash in the bank, which is in turn lent out to fund productive businesses. This savings and investment is the engine of growth; not consumption.

Even if a wealthy person decided to hoard dollars under his mattress, this is not a bad thing. It’s simply a neutral thing. For example, assume the total money stock is $10 trillion. One exceptionally wealthy person manages to acquire a net worth of $1 trillion, or 10% of the total stock of money. Suppose this rich person doesn’t want to buy things; he just wants to look at the money. So he keeps 1 trillion dollars in cash in his house and never spends it. That effectively reduces the money stock to $9 trillion. It causes prices to decline and serves as a transfer of wealth to others who hold cash. It doesn’t affect the total stock of wealth in society, nor does it affect demand or production. It’s not inherently good or bad. For what it’s worth, Steven Landsburg explains this concept very well.

muirgeo August 16, 2011 at 7:28 pm

So now explain the current economy… with record breaking profits and trillions of cash held but not invested by these corporations and the wealthy…. if you say regime uncertainty …. I will cut my… please… just don’t!

Sam Grove August 16, 2011 at 8:33 pm

Muirdiot, where do you suppose they keep that money while waiting for investment opportunities?

Dan J August 17, 2011 at 8:53 pm

Regime uncertainty…… Now cut…. Slice…. Whatever you were going to do.

Darren August 17, 2011 at 7:26 pm

excess wealth corporate

What is excess wealth (or income). Different business have different business models with different factors to contend with. Some have a fairly constant income while for other income is very volatile. Some have more risk and hence more potential reward. Taxing the gains that come with higher risk also discourages the advancements to society that come from taking those risks (computers, biotech, etc.). If you are perfectly happy with the status quo and oppose any technological progress, then high taxation is the way to go. Fewer ‘miracle drugs’ because there would be less dedicated to research. The risk would not be worth it. Those companies/people that are capable of accumulating that excess wealth have proven to be more competent in identifying where that excess wealth should be invested. Sure there are exceptions, but that will always be the case.

Invisible Backhand August 16, 2011 at 9:55 am

Corporations don’t pay taxes til they turn a profit, which then becomes income “from whatever source derived,” according to the 16th ammendment. This isn’t a difficult concept, but certain people like making it a difficult one on purpose.

James N August 16, 2011 at 10:25 am

“Corporations don’t pay taxes til they turn a profit,” Really, they don’t pay a single tax until they make a profit? Property taxes, sales taxes, regulatory (taxes), payroll taxes, gas taxes, etc.. etc..
I believe those are a line item on most corporations financial statements. Of course, I’m not an accountant, so I may be wrong.

Also, even if you’re correct and they don’t pay taxes until they earn a profit, their profits are obviously reduced when they are paid, leaving less money for shareholders, which means that they are then paid by individuals.

Invisible Backhand August 16, 2011 at 10:56 am

You are correct, I meant plain old schedule C corporate tax. I have busted on other people for lumping all taxes in with FIT before so I should be more careful, but it was just a mistake.

Those other taxes are all expenses so are deducted from net income before the corporate taxes are computed, so I’m not sure you are making a point there.

Investors pay a reduced capital gains rate or dividend income rate to compensate them for this grave injustice. Don’t forget as well investing in a voluntary activity so nobody is forcing the poor babies to buy stock shares. They could buy gold or tulip bulbs or form partnerships etc. etc.

And if it’s such a bad deal, how come they are taking over the country?

James N August 16, 2011 at 12:20 pm

“Those other taxes are all expenses so are deducted from net income before the corporate taxes are computed, so I’m not sure you are making a point there.”

I assumed, mistakenly, that my point would have hit you upside your head. You appear to be implying that the tax rate on profits is the only vehicle for the government to “steal” resources from a corporation. Each of the items I’ve listed are another avenue for government to reduce the pre-tax profit of a company.The rate on any of those items can be changed at the drop of a hat. Whether it’s taxed out prior to or after a profit is declared, matters little to the individuals/ shareholders.

“Don’t forget as well investing in a voluntary activity so nobody is forcing the poor babies to buy stock shares.” How ironic, you denounce those investors as “babies” for their voluntary decision to risk their capital, while lauding our government for their use of force when extrapolating earnings from individuals. Just think if government, much like corporations, had to rely on the benevolence of its citizens for their operating capital. Rest assured we wouldn’t be faced with $14.6 trillion debt, with no end in sight.

Bruce August 16, 2011 at 1:23 pm

Schedule C is an individual tax paid at personal rates and filed with form 1040. It’s not a corporate tax.

Seth August 16, 2011 at 11:49 am

And where does the money come from to pay those taxes?

Bill August 16, 2011 at 9:57 am

Well, at least you stumbled on the truth in your last sentence.

SweetLiberty August 16, 2011 at 11:20 am

Liberals always want to tax the unwilling. Why not simply raise the taxes on the willing based on those who vote Democrat, Green Party, or other socialist-minded agenda? Surely that would constitute about 50% of the country – and the sky is the limit as to how far these taxes could be raised! Government revenues would rise, liberals would be taxed blissfully blind, and those who wish to opt out of increased taxation would be left to pay current rates (albeit at the cost of freezing government “benefits” at current levels).

The voracious appetite of government would quickly consume the liberals’ blank check and, while they would enjoy the food stamps, public parks, poor health care and measly retirement benefits, they would miss the opportunity to blog on sites like this one since they could no longer afford to buy a computer and would get tired of waiting in line at the public library to use the “free” ones.

vikingvista August 17, 2011 at 2:53 am

Taxes exist only for the unwilling. The only purpose of taxation is to extract resources from the unwilling. Otherwise it wouldn’t be called “taxation”, it would be called “trading” or “donations”.

When Buffet calls for higher taxes on the rich, he isn’t calling for the equal treatment of himself and others with similar means. In fact, it can only be the opposite. He is calling for the sanction of his free choice, and the violent supression of the choices of others.

Sam Grove August 16, 2011 at 2:32 pm

I’m sorry if the logic is too complex for you.

Where do corporations/businesses get their revenues if not from their customers?

Government spend must always and can only be paid for by the labors of those that produce goods and services.

One way of another, they will inevitably pay the cost by a relative reduction in their own standard of living.

Oversexed August 16, 2011 at 7:32 pm

I don’t think that if Warren Buffet pays more in taxes that his standard of living will suffer at all. Why do you think that wretched state of affairs that you conjure up could possibly be true?

Sam Grove August 16, 2011 at 8:00 pm

underthought

The cost of everything is due to the fact that people must labor to create everything. The cost of creating the resources consumed via government spending is the directed efforts of the people who create them.

Warren Buffet expends very little directed effort in creating the goods and services consumed via government spending, especially as a portion of his total entitlements.

It is those who labor to create goods and services that bear the true cost of government spending. It can’t possibly be any other way.
Try to look below the surface. Money/accounting is the surface of economics.

Oversexed August 16, 2011 at 9:09 pm

“… people must labor to create everything.”

Are you living in the horse and buggy era? Machines are replacing people as we speak. I guess you’ll have to feel sorry for the poor machines, if the the rich are taxed more.

Chucklehead August 17, 2011 at 1:34 am

Machines of the world, UNITE.

Sam Grove August 17, 2011 at 12:45 pm

Again, your are underthought.

Who makes the machines? Who operates them? Who designs them, documents them, packages them and their products?
Who delivers their products to market?

Machines are merely labor amplifiers, enabling workers to produce more than they could before.

Who drills the oil to provide energy to run the machines?

It goes on and on. All costs are the cost of human labor required to produce goods and services, and all the costs represented by government spending are provided by those who labor to produce the goods and services that are consumed thereby.

Ken August 16, 2011 at 8:01 pm

The serious flaw in your logic, courtesy of Stephen Landsburg:

http://www.thebigquestions.com/2011/04/18/the-man-who-cant-be-taxed/

Regards,
Ken

vikingvista August 16, 2011 at 9:56 pm

Where do their customer’s get THEIR revenues? Perhaps customers don’t pay the taxes either.

John Sullivan August 16, 2011 at 2:52 pm

Muirgeo,

If you intend for me to support you in your golden years, it might be in your best interest to allow me to keep some of the money I earn until then.

Best,

John

muirgeo August 16, 2011 at 4:45 pm

John ,

I am a net tax donor in my current brackett. I have been for some time. So I am not asking for anyone to support my way…. I am pulling my own way and others as well.

I just understand that the first 20 years of my life I paid almost NO taxes and benifited from the things people before me paid for with their taxes and their HIGHER tax rates.

I had public libraries,streets, war fought freedom, sewer systems, an electric grid, a public shool system, a health care system, tons of publically funded research …. all funded by people who came before me and worked and profitted and contributed back.

I’d have to be some sort of a total selfish, spoiled brat child asshole to think I owe nothing back to the society that helped me to prosper.

What baby ass simpleton logic to claim… “I got mine now you get your own.” It’s a pathetic childish stupid position to hold. I am so fucking glad I don’t see the world and our country like that… and I am so glad that those who came before me were more inspired and forward thinking.

Randy August 16, 2011 at 6:25 pm

All the things those politicians gave you were first taken from those who earned them… and you give the credit to the politician. You can call it “forward thinking” all you want, but I still call it corruption.

muirgeo August 16, 2011 at 7:30 pm

Randy,

You are incabale of thinking of anyone but yorself. But i still think you are a nice guy. How do you earn your living?

Sam Grove August 16, 2011 at 8:35 pm

Sorry Randy, he’s just clueless about economic fundamentals.

Greg Webb August 16, 2011 at 9:32 pm

Randy, you are right. It is corruption.

Randy August 17, 2011 at 5:46 am

Muirgeo,

If it were true what you say that I am incapable of thinking of anyone but myself then I would not be able to earn a living. I’m a specialist. I care about real people with real problems everyday (and many nights). I’m a father. I care about my family. What you want me to prove to you is that I “care” about some ill defined classification of your choosing by relenquishing what I have earned to thieving politicians without complaint. Not gonna happen. And I have nothing to prove to you.

Richard Stands August 17, 2011 at 9:49 am

But you don’t care enough about other people to demand government coercively take from other citizens in order to assuage your personal views. How selfish.

Dan J August 17, 2011 at 3:08 am

Damn! I have been paying taxes since 11. State and federal income taxes since 18. Aaaaand, my mother had to pay my share of taxes on money officially earned from 16-17.
Had job since 11yrs old. Had money to buy things. Paid taxes on my purchases.

Russell Nelson August 18, 2011 at 1:56 am

Holy fuck, you’re stupid, Muirgeo. Could you please stop overheating your puny little brain attempting to make sense of the world, and go away? Seriously, you’ll never be able to figure out how things happen. And you’ll never understand ANY explanation you get here; even if it agrees with you. We’re just head and shoulders above you intellectually. Please die. You are a waste of good oxygen.

Dick Fitzwell August 16, 2011 at 10:48 am

I was talking with my dad recently about corporate taxes. We were watching a gubernatorial debate and one of the candidates said that he wanted to raise taxes on businesses. I went into the old Friedman rant about how “corporations don’t pay taxes; only people can pay taxes.” He said that that was ridiculous. He seemed shocked that I would even put forth such an absurd statement. “Of course businesses pay taxes!”, he told me. I said that people have to pay those taxes–it will either be the shareholders (least likely), the employers (through less total wages–lowering productivity) or the consumer (through higher prices). My dad kept on, however. He said, “You’re splitting hairs. After all, I pay a property tax.” I replied, “That’s right! YOU pay the property tax! It’s just as absurd to think that corporations pay taxes as it is to say that the property would pay the tax!” He still would not agree with me. Admittedly, I need some work on my persuasion tactics!

Invisible Backhand August 16, 2011 at 11:10 am

Dick Fitzwell is your porn name, isn’t it?

I’ll try and explain. Pretend you start the year with zero dollars and make 50,000, and the FIT is 10%, so you pay 5,000. The other 45000 is yours to keep and never taxed again.

Next year you invest your 45000 in a corporation. Shares go down or stay the same, you pay no taxes. Shares go up to 50000 but you don’t sell, pay no taxes. Sell your shares and you only pay taxes on your 5,000 dollar *gain*, or 500 dollars.

If you didn’t pay taxes on the gain, you would have tax free income “from whatever source derived’ and an unfair advantage over people who make their money by working instead of investing.

That help?

Cthorm August 16, 2011 at 11:25 am

The numbers muddle the point.

With current tax policy, individuals pay taxes on a revenue basis (your paycheck), while investors pay taxes on a profit basis (capital gains).

Invisible Backhand August 16, 2011 at 1:49 pm

yes and?

vidyohs August 17, 2011 at 8:38 am

Yes, and? What did your explanation of your view have to do with who actually pays the taxes that are transferred from a business to the government? It had nothing to do with that subject.

Mr. Wright down the road from me runs an A/C company (incorporated). Every dime he has comes from what he collects as fees for the service his corporation performs for customers (the public). Hence when his corporation is taxed it comes out of the money he earned by providing service, and that is money that comes from his customers. In paying the tax he is merely transferring the requisite amount to the government instead of getting to keep it himself.

Mr. Wright does not have another source of income independent of those fees for service, therefore you can’t reach Mr. Wright in taxation without effecting all of his customers.

If the government raises his taxes, Mr. Wright raises his fees, and the government still has not raised taxes on the corporation, it has actually raised taxes on the customers of Mr. Wright.

How much mo simple do it gotta be for people to understand why raising taxes on the cow will not cause the cow to pay taxes.

Rich Berger August 16, 2011 at 12:27 pm

So if we prevented everyone from investing, things would be fairer, eh?

Invisible Backhand August 16, 2011 at 1:49 pm

Yes! My you are astute.

Dick Fitzwell August 16, 2011 at 12:52 pm

That’s not really what I was talking about, but thanks.

Dan H August 16, 2011 at 2:56 pm

Let’s say I make $40,000 in salary per year. Let’s say I have investments that total $200,000. Let’s say it’s 2008 and my portfolio took a major hit. It’s now down to $160,000. So, essentially, I didn’t make any money in the year 2008. I’m even. As an individual, I did not profit at all. Should my $40,000 be tax exempt?

vikingvista August 17, 2011 at 2:59 am

Yes. But if in addition you advocate tax victimization upon others, you deserve any financial raping you might get.

The fact is, I am better off with you spending your own money, than with the government spending it.

tdp August 16, 2011 at 3:03 pm

No, if you invest $5,000 in a corporation (100 out of 500 shares) and the values of your shares hit $50,000, (so the whole company’s worth is $250,000), first, 35% gets taken by Uncle Sam, or $87,500. Your shares, worth 20% of the company, have $17,500 taken from them. Then, you pay a 15% capital gains tax on the remaining $32,500, or $4,875. You now have $27,625, or an effective tax rate of 44.75%. If you make $50,000 in salary (income), you pay $5,000 in taxes, minus whatever tax breaks you get, and are left with $45,000.

Economiser August 16, 2011 at 3:15 pm

Why are you taking 35% of the value of the shares? Corporate tax is levied on annual profit, not the value of the company.

tdp August 16, 2011 at 3:44 pm

Then a revised rate would be:

-The company’s value increases tenfold, so its profits would be $200,000, so 35% of that is $70,000, or $14,000 of your 20% stake in the company. You then pay a 15% capital gains tax of $5,400. You now have $30,600 out of your original $50,000, so your effective tax rate is still 38.8% because of double taxation.

Invisible Backhand August 16, 2011 at 7:35 pm

What would the basis of the corporation be before and after and your basis before and after?

Ike August 16, 2011 at 11:11 am

Corporations pay taxes, from the giant mountain of shiny coins they pantslessly toboggan down within their Swiss bank vaults.

Oh, wait… That’s Scrooge McDuck. And if you believe corporations pay taxes, you must believe in pantsless ducks that walk, talk, and spend time cavorting with their pantsless “nephews” without being investigated for improprieties.

Economiser August 16, 2011 at 3:25 pm

Relatedly, diving headfirst into a pile of gold coins is a bad idea.

vikingvista August 16, 2011 at 9:53 pm

If you don’t believe corporations pay taxes, you must believe that the supply of corporate goods and services is completely inelastic.

True, that corporations don’t have a magic money making machine. But neither do their customers. Nobody does, except the central bank.

Slappy McFee August 17, 2011 at 9:10 am

I’m still waiting for Duck Tales to come to Netflix.

Cthorm August 16, 2011 at 11:21 am

AFAIK this is the quickest and clearest way to explain it.

“A corporation is just a fictitious, pass-through organization. Any tax levied on a corporation will ultimately be paid through one of three mechanisms: lower wages for workers, lower profits for shareholders, or higher prices for consumers.”

This is not technically correct though. “Lower wages for workers” really means “lower costs for inputs,” and could be reflected in cheaper capital equipment, lower spending on R&D, or lower travel expenses. Having worked at my fair share of businesses, I’d say virtually all businesses spend substantial sums on low marginal utility expenses that could easily be cut back, such that no productivity loss would be incurred, but I’ve never known a manager up to the task.

SweetLiberty August 16, 2011 at 11:30 am

The issue with the economy isn’t the level of taxation, but rather which entity better increases the overall wealth and well-being of a society: government or private enterprise. If government could provide the rich diversity of choice, wealth creation, and relative efficiency the private sector offers through competition and profit seeking, no one would be arguing against 100% taxation in exchange for utopia. But governments are rife with corruption, mismanagement, and waste. Corporations which suffer from these maladies will succumb to superior competition (if not artificially protected via crony capitalism), whereas incompetent governments siphon ever more resources to further increase the overall level of inefficiency.

kyle8 August 17, 2011 at 6:54 am

Well said. It should also be added that our government often does things that almost nobody wants them to do whether they were efficient or not.

James D. Miller August 16, 2011 at 11:43 am

When I tell my intro micro students that corporations can’t really pay taxes they start off convinced I must be joking or mistaken.

Oversexed August 16, 2011 at 12:11 pm

What you meant to say was that corporations DON’T really pay taxes.
That is the meaningful discussion that you should engage your students in.

http://www.nytimes.com/2011/03/25/business/economy/25tax.html

James D. Miller August 16, 2011 at 10:59 pm

I mean can’t because a corporation can no more pay a tax then a cow (or as I say in class a chair) can.

Invisible Backhand August 16, 2011 at 1:51 pm

What does the book you teach from say? I’d love a cite on this.

James D. Miller August 16, 2011 at 10:59 pm

Sorry I don’t have a cite on this.

vikingvista August 16, 2011 at 9:34 pm

Mistaken.

JWH August 16, 2011 at 11:48 am

Cows are taxed on Cattle ranches and Dairy Farms and they don’t pay the tax, the farmers and ranchers do it for them. Most of ranchers I know don’t like it very much either. However, I don’t hear these same folks complain about their subsidies, which is emblematic of the pickle in which we find ourselves.

John Sullivan August 16, 2011 at 2:56 pm

There is a joke about cheating at golf that your post reminds me of. Assuming you are the one keeping the scorecard, after finishing a hole where you get a 7 and your playing partner gets a 5, as you walk to the cart, you say to him “nice 4″, and wait for his response. If he doesn’t correct you, then you give him a 4 and take a 5 for yourself. This is how society works.

GreenDinosaur August 16, 2011 at 3:49 pm

What is the current level of support for the FairTax (as it currently stands, not the inaccurate version the President’s Advisory Panel on Tax Reform). Since it eliminates corporate taxes entirely except for a 23% tax on their purchases (rather than 35% on profits and 15% on the capital gains of the stock holders), it would seem to eliminate the problem. Plus, 500 major foreign corporations said they would either move their HQ to the US or open up their next plant in the US if the FairTax were passed. It would do wonders for competitiveness.

yet another Dave August 16, 2011 at 7:54 pm

I don’t know overall numbers but my support for the so-called FairTax is zero. My opposition is 100% because of the severe problems riddling the FT.

The insistence among FT supporters to use the highly misleading inclusive tax rate illustrates one of the problems. The 30% sales tax rate is WAY too high – thus the need to deceive. Exemptions will soon follow for some items (such as new houses), thus requiring an even higher rate to be revenue neutral.

The formula method for determining the rate gives powerful incentives to manipulate the values used in the formula. Plus, the rate itself is way too easy for congress to change. Many other federal taxes remain if the FT passes – including the income tax (unless the bill has changed to require ratification of the amendment to repeal the 16th amendment prior to implementation). Add it all up and taxes will go up if the FT passes.

Perhaps the worst is the phenomenally moronic “prebate” idiocy. We already have too many people who see the gov’t as a provider – everybody getting regular checks from Uncle Sam will only add to this problem. The FT is a statists dream come true – big government supporters would be hard pressed to come up with a better way than the FT to fuel their expansion of the state.

In short, the so called FairTax is an exceptionally bad idea that needs to be defeated with extreme prejudice.

ninja August 16, 2011 at 10:45 pm

The 23% inclusive rate is calculated the exact same way federal income and FICA taxes are calculated, as they make plain on their website. http://www.fairtax.org/site/News2?news_iv_ctrl=1541&page=NewsArticle&id=8248

In addition, the price of production and thus the price of goods (pretax) drops, and if prices drop even 3 or 4%, everyone has more purchasing power. Also, the FairTax eliminates gift, estate, income, corporate, payroll/FICA, dividend, and capital gains taxes. All the studies critical of the FairTax used a completely different consumption tax for calculating the tax’s effects.

You can use their calculator to compare your income both before and after the FairTAx while tinkering with interest rates on mortgages and the amount by which pretax prices drop.

Also, the prebates are designed to reimburse the sales tax paid by families up until the poverty level. They don’t add enough extra money/purchasing power to encourage people to life off the dole any more than they already do.

If you have read through all the information on the website, including the the responses to criticism, and still oppose the FairTax, then you have my sincere apology and I will admit to being mistaken. Otherwise, you have attacked a straw man because the FairTax you present is entirely different from the FairTax that has been proposed.

http://www.fairtax.org/site/PageServer?pagename=news_search_rebuttals

ninja August 16, 2011 at 10:46 pm

The 23% inclusive rate is calculated the exact same way federal income and FICA taxes are calculated, as they make plain on their website. http://www.fairtax.org/site/News2?news_iv_ctrl=1541&page=NewsArticle&id=8248

In addition, the price of production and thus the price of goods (pretax) drops, and if prices drop even 3 or 4%, everyone has more purchasing power. Also, the FairTax eliminates gift, estate, income, corporate, payroll/FICA, dividend, and capital gains taxes. All the studies critical of the FairTax used a completely different consumption tax for calculating the tax’s effects.

You can use their calculator to compare your income both before and after the FairTAx while tinkering with interest rates on mortgages and the amount by which pretax prices drop.

Also, the prebates are designed to reimburse the sales tax paid by families up until the poverty level. They don’t add enough extra money/purchasing power to encourage people to life off the dole any more than they already do.

If you have read through all the information on the website, including the the responses to criticism, and still oppose the FairTax, then you have my sincere apology and I will admit to being mistaken. Otherwise, you have attacked a straw man because the FairTax you present is entirely different from the FairTax that has been proposed.

Also, check out the “rebuttals” tab to see more responses to the straw man attacks leveled at the FairTax.

yet another Dave August 17, 2011 at 1:00 pm

The 23% inclusive rate is calculated the exact same way federal income and FICA taxes are calculated…

And exactly the opposite way every other sales tax is calculated. I completely understand the inclusive methodology, and have for years. The fact that they explain that and why they use an inclusive rate does not reverse the deception because many people do not understand the distinction. Those people are deceived into thinking the rate is lower than it is.

In addition, the price of production and thus the price of goods (pretax) drops, and if prices drop even 3 or 4%, everyone has more purchasing power.

It is patently ludicrous to claim that the FT produces the same revenue it replaces and simultaneously claim that people will have more purchasing power. If the argument was the FT will produce more economic growth so people will over time see an increase it would be worth considering, but that’s not the claim you’re repeating.

Also, the prebates are designed to reimburse the sales tax paid by families up until the poverty level.

I understand that, but it doesn’t change what I said. The prebate is the most phenomenally perverse and astonishingly idiotic part of the entire FT proposal. I cannot imagine how anybody except for those seeking to empower an even larger leviathan state could support such a spectacularly stupid idea.

If you have read through all the information on the website, including the the responses to criticism, and still oppose the FairTax, then you have my sincere apology and I will admit to being mistaken.

I read through everything there – I’m no stranger to the claims and arguments – and I do STRONGLY oppose the so called Fair Tax. FWIW when I first heard of the FT my reaction was “it’s about time!” I’ve advocated eliminating income based taxation for many years. When I studied the proposal I was extremely disappointed to discover how abysmal it truly is. It’s a shame because some of it is a vast improvement over what we have now, but the positives don’t even begin to offset the huge negatives.

ninja August 17, 2011 at 4:15 pm

If the taxes replaced by the FT are inclusive, wouldn’t it make sense to calculate it the same way? Furthermore, as FairTax again points out, an overwhelming majority of its supporters understand the distinction between inclusive/exclusive. They are not being bamboozled or hoodwinked by anyone.

And yes, I do assume that the FT increases economic growth since it lowers the effective tax rates on corporations and businesses and eliminates them on saving and investing. Companies have greater incentive to hire people (overall effective tax rate is lower and eliminates double taxation), and when combined with the stripping away of excessive regulations in the marketplace, the FT produces more economic growth (and thus more long-term revenue), especially in job opportunities for those who are at poverty level. Once they get jobs and start earning more money, their prebates fall.

Plus, is it not correct to assume you hate the prebates because they are in addition to existing welfare programs? What if welfare and medicaid were replaced by prebates? The cost of prebates would be far less than the $333.3 billion spent on Medicaid fro FY 2012 and the $431.5 billion spent on other welfare programs (just federal spending). So in net, you would be transferring less wealth from rich to poor and the increased growth would do the rest. If the prebates were the only transfer payment in a government-loving country like America I’d take that concession over the current morass any day, especially if free markets were allowed to function and productive behavior were not constantly discouraged by restrictions and punitive policies like now.

yet another Dave August 17, 2011 at 6:29 pm

If the taxes replaced by the FT are inclusive, wouldn’t it make sense to calculate it the same way?

No. Because it’s a sales tax it should be described the way every other sales tax is described. Of course, talking about a 30% tax rate would probably reduce support for the proposal at the margin, so it’s easy to see why that’s unattractive to supporters.

I am not saying the deception is intentional, after all the explanation is right there on the website, but some do not understand the tax rate correctly. Those people have clearly been deceived, even if unintentional. Describing the rate the same way every other sales tax rate is described would eliminate the deception.

Plus, is it not correct to assume you hate the prebates because they are in addition to existing welfare programs?

Yes – it is not correct to assume that. Do you not see how receiving regular checks from the government will impact the general attitude toward big government? Do you believe even more people seeing Uncle Sam as an income source can possible be a good thing? Also, the prebate adds unnecessary complexity, overhead and bureaucracy (read cost).

If the goal is to alleviate the burden on poor Americans of a potentially regressive tax, I’d much rather see basic necessities excluded (like most sales taxes already are set up) instead of this idiotic bureaucratic candyman monster called the prebate. It truly is a completely terrible idea.

I understand your preference, but I don’t believe we’d ever get to the point where that was the only transfer payment.

steakknife August 17, 2011 at 10:48 pm

So what would be wrong with one that just doesn’t enforce the tax on basic necessities instead of a prebate?

Darren August 17, 2011 at 7:44 pm

They don’t add enough extra money/purchasing power to encourage people to life off the dole any more than they already do.

You could have said that about SS and Medicare at one time, too.

tdp August 16, 2011 at 10:56 pm

@ YADave

Wouldn’t it be a good thing if the FairTax wasn’t revenue neutral? It would force smaller government on Washington and reducing revenues (or at least tax rates) as well as expenditures worked in Canada, Ireland, New Zealand, and Slovenia, while trying to increase revenue with more taxes has been unsuccessful in Britain, Spain, Greece, and Portugal.

yet another Dave August 17, 2011 at 1:09 pm

It would be better if government revenues and spending went down substantially, but the so called FairTax is just a horrible proposal. It’s way too complicated and far too easily manipulated. I can’t get over what a profoundly studid idea the prebate is. It doesn’t (because it can’t) force the end of income taxes, and its implementation doesn’t depend on ratification of repeal, so we’d almost certainly end up with both income and sales taxes. The positives just don’t offset these problems.

Darren August 17, 2011 at 7:45 pm

It’s way too complicated and far too easily manipulated.

Just about anything will be manipulated to give political favors to preferred interest groups.

kyle8 August 17, 2011 at 7:02 am

I agree with you the entire FT plan is unworkable. In order to have a true national sales tax you would have to have a lower rate, no exemptions whatsoever, and no ridiculous rebate scheme. (I shudder to think of how much fraud would be associated with that. I wonder how long before there would be a premium to your rebate for minority groups?)

Furthermore you could only sale it to the public if it were progressive. Because there is too much ignorant anti-rich sentiment in the country. But, of course you could make a sales tax progressive. by having rates go up on high ticket items. I am unsure of what the economic effects of that would be.

tdp August 17, 2011 at 4:17 pm

Perhaps they could devise a different proposal that takes the good parts of the FT and fixes the bad ones (a lot of the “problems” with the FT are designed to make it politically palatable, especially to the center and the center-left). Have the best economic minds debate on a way to improve upon the national sales tax idea.

vikingvista August 16, 2011 at 9:28 pm

The cow doesn’t pay. But if you tax the cow, both the cow owner AND the cow owner’s customers pay.

There is an equivalent error espoused by some conservatives and libertarians–that business owners are immune from business taxes because they pass all of the tax on to customers.

Both errors reflect a complete failure to recognize supply and demand dynamics.

Chucklehead August 17, 2011 at 2:25 am

So lets see if I get this straight. Please correct me when I go astray. The price of the cow is $ 1000.00., which is the same price as 20 goats, as 20 goats produce as much milk and meat as 20 cows; market equilibrium. There is a new 10% tax on the cows. The price of the cow goes up 10%. The customers cost is now $1100.00 or 22 goats.
So the choice of the customer with their scarce resources is to buy less cows , switch in part or whole to goats. The farmer looses sales because the customer is buying fewer cows. The customer looses sales, because he had a small preference for cow milk and meat, which is why he had been buying cows previously, and most important, the cow looses because with decreased demand, it is less likely that the cows genes will be passed on to a smaller heard. Government wins!

Chucklehead August 17, 2011 at 2:50 am

Strike the word sales after “customer looses”

vikingvista August 17, 2011 at 3:34 am

Something like that. A trade creates wealth for both trading parties. That anticipated gain is also the incentive to trade. A tax, regardless of who it is directly levied upon, takes part of that wealth from those parties both directly and by the loss of incentive.

Don’t think of a tax as a mere confiscation of someone’s resources. If you do, you have think through the chain of repurcussions. You can automatically ecompass many of those important secondary effects by thinking of a tax as a reduction in trade, where only a part of the lost wealth is recovered by the government. The rest is lost to everyone.

Richard Stands August 17, 2011 at 10:01 am

Would this be something like an Keynesian divider?

Randy August 17, 2011 at 5:24 pm

I like the concept.

tdp August 16, 2011 at 10:50 pm

Obama is “daring” the GOP to block his jobs package. His increasing combativeness is a sure sign he is losing his grip. He has also left himself wide open for a rhetorical and political sucker punch. He apparently thinks anyone who opposes big government and his statist “jobs” package is actively trying to keep people unemployed. No, Mr. President, that would be you.

If the GOP can keep him angry and hateful and spin it into him being angry at the American people, they can have a field day.

Dan J August 17, 2011 at 3:05 am

FDR used govt funded programs as patronage for winning re-election….. Keep close eye on Obama admin to follow in footsteps.

tdp August 17, 2011 at 11:29 am

Call them make work jobs and point out how quickly the “stimulus” jobs provided by the government are falling away.

Dan J August 17, 2011 at 8:56 pm

At $287,000 per job: priceless

kyle8 August 17, 2011 at 7:05 am

Many parallels to Jimmy Carter, I remember how angry, mean-spirited, and small minded Carter was when running against the optimistic Reagan.

Left wingers true nature is to never be satisfied, and eternally pissed off.

Scott Murphy August 17, 2011 at 7:47 am

I thought the point Don was making is the Taxes charged a corporation would be passed along to the consumers. Is that not right?

Also, watching the republican primary debates. I heard a lot of people acting like lowering taxes would somehow jump start the economy. Why isn’t this Keynesian? Seems like people on the right and left buy into this idea of Corporate tax rates doing something other than increasing prices on us. (unless you think they were making some long term argument about taxes which believe me they weren’t.)

vikingvista August 17, 2011 at 11:03 am

Some of the cost is passed on. It is a mistake by some here to think that the corporation owners themselves pay nothing. If corporations pass all the tax to consumers, then why don’t consumers pass all the cost to their employers? The truth is that a tax reduces trade, and thereby reduces the trade benefit to BOTH parties. The cost is dispersed, unequally, through the economy. Aside from the offense of actually facing the tax man, the market dispersion of the tax is little affected by who the tax is directly levied upon.

Scott Murphy August 17, 2011 at 8:35 pm

Totally agree that taxes reduce trade. I think regulation and government interference are much bigger influences right now. At least at the company I work for.

Darren August 17, 2011 at 7:51 pm

I’d think what is much more important is stability. It seems to me businesses need to be able to plan ahead. If taxes yoyo up and down or regulations are appearing out of thin air, businesses would tend more to hunker down and not invest for fear of getting penalized for making a bad decision based on what they erroneously thought the economic and regulatory environment would be several years from now.

John Dewey August 17, 2011 at 8:44 am

Interesting to note the difference in thinking by the generations of the Stein family.

In “The Fiscal Revolution in America”, Herb Stein observed the impact of cuts in corporate and income tax rates by Congress following World War II. As he notes, once entrepreneurs were allowed to keep more of their earned income, they invested more in new business, and government collected more revenues.

Here’s a quote from Herb Stein’s book which Jude Wanniski offerred as his inspiration for some aspects of his supply-side economic theory:

“In order to yield its beneficial effect on the revenue, a tax reduction had to be of the right kind. It had to be a cut of the higher income tax rates, which would induce the saving classes to invest in productive United States enterprises rather than put their money in tax-exempt securities or foreign bonds or hoard it or consume it. The additional investment would raise the national income, and therefore the tax base, enough to yield enlarged revenues even at the lower tax rates.”

Here’s what Herb’s son, Ben Stein, has to say about our current government deficit:

“A simpler way would be tax people who have a great deal of money, tax them more, let them help pay down the debt. Look, if a person is a millionaire or a billionaire who are making $20 million a year, he can afford a tax increase.”

Don Boudreaux August 17, 2011 at 9:17 am

Yep. Shows the difference in the way economists do economics from the way actors do economics.

James Strong August 17, 2011 at 11:06 am

It’s just the same old “tax the rich” argument expressed in a different way.

Of course a tax on corporations is a tax on people and I think that anyone who reasoned through the logic would arrive at the same conclusion. I don’t think anyone would dispute that technically Romney is right.

It’s all just politics. Politically, it isn’t a good thing to say that taxing corporations is the same thing as taxing people because corporations are evil! If you make a connection between corporations and human beings then they lose some their “evilness” and the argument to tax them loses weight. We must tax the rich more, therefore corporations cannot be people!

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