Arnold Kling  

Answering Jason Furman

Leaving the Church of Democrac... My Tax System...

He defends the corporate income tax.

All taxes are ultimately paid by people. Just who those people are in the case of corporate taxes is a complicated and controversial question. But in almost any theory, those people are, on average, wealthier than the general population.

The incidence of the tax is not the same as who pays it. For example, if you shifted all of the payroll tax from individuals to employers, the incidence would stay where it is (I tend to think that it falls mostly on workers). The incidence of the corporate tax is not so clearly on high income individuals. It is a tax on capital, which reduces the capital stock, which in turn reduces labor income. I am not saying that the incidence falls entirely on labor, but it does not fall entirely on the people who own corporations, either.

Finally, there is the deadweight loss of the corporate income tax. See Jane Galt's classic post.

Speaking of Jason Furman, his comments on my co-blogger's book include:

finding myself siding with the libertarian Caplan against some of his critics, like the normally excellent Kevin Drum. Drum argues that “In the marketplace we are competitive, selfish, meanspirited, and xenophobic” but that we can lift ourselves up as a society by behaving better in the ballot box. But Kevin gets both the marketplace and Caplan’s insight into the ballot box wrong. In the marketplace we’re generally not meanspirited or xenophobic because we can’t afford to be. Most people are rational enough to buy the cheapest and best t-shirt, even if they harbor a mean-spirited and xenophobic hatred of the foreigners that produced it. But once you enter the ballot box there’s no cost to indulging in your xenophobia by voting for higher tariffs on t-shirts because the chance of your particular vote actually changing the outcome and raising the price of your own t-shirt borders on zero, making it materially costless – and thus completely rational – to indulge in your prejudices.

As a blogger, I realize that all of us occasionally write things that, if we had press secretaries, would cause them to issue statements claiming that we mis-spoke, were misquoted, or had our remarks taken out of context. Mr. Drum's characterization of market behavior as mean-spirited and xenophobic strikes me as one of those. As a precaution, he might want to read Paul Seabright's The Company of Strangers before he puts his foot in his blog-mouth again.

Finally, as Bryan points out, Furman's "unshakable faith in broad-based participatory democracy" is a bit difficult to fathom, in addition to making me want to barf.

The folks who wrote our Constitution had considerable wariness toward broad-based participatory democracy. If only they had been even more wary. I would have limited each session of Congress to no more than one week, and given them a legislative word limit of, say 3000 words per session.

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The author at Club for Growth in a related article titled Tuesday's Daily News writes:
    THE DAILY NEWS Protectionism Looms After Doha Trade Talks - Kennedy & Drajem, Bloomberg Thoughts on the Corporate Income Tax - Arnold Kling, EconLog A Bad Bill That Will Raise Taxes - Rob Bluey, Freedom to Choose the Union Label - Jame... [Tracked on June 19, 2007 9:19 AM]
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caveat bettor writes:

I LOVE the idea of taxing politicians by the word and by the session hour. Maybe they will learn something about taxes in the process.

Jason Furman writes:

I'm still waiting to hear what your ideal tax system would look like. And even if you believe the optimal tax on capital income is zero, how you would implement that without a business level tax. I'm also waiting to hear if you object to the flat tax or the X-tax because they tax cash flows at the business level.

In other words, you didn't really answer Jason Furman.

aaron writes:

The complex tax system acts as a mechanism for and incentivizes useful data collection.

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