We were going to avoid commenting on Catherine Rampell’s silly attempt to smear the Republican Party. We didn’t think she was worth our time but after reading and commenting on Aaron Hedlund’s serious piece in the NRO we felt we had to make a comparison. Aaron was taking a risk with his career to start a serious discussion. We are not sure what Catherine was doing or why she was doing it. Here is how she starts off:
Republicans have one idea and one idea only: That we should cut taxes for the rich. The only thing that changes is the sales pitch.
Goodness! That is the whole first paragraph. Catherine writes for the Washington Post which is often thought to be a serious outlet for news and opinion. The Harding, Kennedy (he is an honorary Republican now), Reagan, and Bush tax cuts were across the board. The Romney tax cuts would have been across the board too if we has the sense to elect Mitt.
Most of the interest this time around, however, is on reducing business (including corporate) taxes. So after smearing The Donald, The Donald Jr., Betsy DeVos, and Jared Kushner she says:
A slightly different trickle-down pitch (one Romney, House Speaker Paul D. Ryan, and other prominent Republicans have also made) has to do with capital formation.
If corporate income taxes and capital gains taxes fell, then shareholders would get to keep a higher portion of corporate profits. That means investors might be willing to offer more capital to businesses, and thereby help them expand — which could grow jobs and wages.
Ah, start the old trickle-down lie. Thomas Sowell takes this caricature to task in depth. Here is part of his conclusion:
To the extent that the American economy has changed since the time of Andrew Mellon, it has changed in ways that make it even easier for wealthy investors to escape high tax rates. A globalized economy makes overseas investments a readily available alternative to buying taxexempt bonds domestically. Even if the domestic tax rate is not “high” by historic standards, what matters now is whether it is high compared to tax rates in other countries to which large sums of money can be readily sent electronically. Meanwhile, unemployed workers cannot nearly so readily relocate to other countries to take the jobs created there by American investments fleeing higher tax rates at home.
Of course, Catherine and rest of the left wants laws to prevent the flight of capital and organizations from the US. She is also implying that corporate taxes fall entirely on shareholders. There are two problems with this. First, shareholders are widely dispersed. Secondly, and more importantly, it is unlikely that corporate taxes fall entirely on shareholders. Here is what the CBO found:
Even though the majority of the studies conclude that labor bears a substantial burden of the corporate tax, the various methodological limitations put the reliability of those specific estimates into question. Indeed, trying to address the long-run incidence of general corporate income tax is a daunting task, and these studies have made attempts at using the data available to provide insight into that question. However, it remains unclear where incidence will fall in an open economy. [Emphasis added]
To summarize, the notoriously right-wing CBO (satire alert!) found that research generally showed that labor bears a substantial burden of the corporate tax but it can’t be certain that the research is right. We wonder how they do their projections if it is (and it is) unclear when will happen in an open economy. Reducing corporate taxes is likely to improve corporate decision making and it is also likely to help labor.
Robert Verbruggen notes that economists disagree (a shock!) on how to increase wages. One way that has substantial but not complete support from economists would be to reduce corporate taxes.
Catherine’s piece is very different from Aaron’s. Aaron has made his arguments and stuck his neck out. Catherine has just told us she doesn’t like Republicans and really dislikes The Donald and his associates. She has offered amazingly little other than reciting some dubious mantras of the left. They do, however, have one similar shortcoming. Neither has suggested a willingness to compromise. We think there needs to be a compromise to make a breakthrough. Many are possible but here is our suggestion: reduce the corporate rate to 15 percent, eliminate the federal gas tax, and enact a carbon tax equal to or even slightly above the current gas tax. It is a deal that gives something to the climate folks, the deficit hawks, economic conservatives. Each group loses something as well but you can’t trade Don Buddin for Mickey Mantle. It is time for political folks to do political stuff.