Garett Jones  

Bowles-Simpson: Don't Fight the Focal Point

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In today's US News Debate Club, I offer my views on the latest deficit reduction outline offered by Clinton Administration official Erskine Bowles and former GOP Senator and current curmudgeon Alan Simpson.  My closing sentence: 

We could do worse than the latest Bowles-Simpson plan; we probably will.

Dean Baker, Alan Simpson, and others offer their views; I encourage you to vote for your favorite.  

Me, I voted for Simpson.  

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COMMENTS (4 to date)
Effem writes:

Seems like a lot of the critics feel like Simpson-Bowles is too easy on corporates. This is something I've pondered myself seeing that: 1) corporate profit margins are at record highs, 2) corporate taxes paid (as a % of pretax profits) are near record lows, and 3) corporates haven't exactly been reinvesting high profits in any way that seems to help the lower/middle classes.

I certainly would feel bad cutting someones pension or health benefits until at the very least the corporate tax rate (taxes actually paid) were near historical averages.

Curious to hear your thoughts.

R Richard Schweitzer writes:

That is IF we (?)do anything!

Mike W writes:

Is what you mean by "the focal point" public opinion?

Because the argument for doing nothing is indeed the one most popular with the debate's voters:

Where did the 70 percent number* come from, divine inspiration? It is clearly not grounded in reality. Japan has a debt-to-GDP ratio of more than 200 percent and can still borrow long term at just 1.0 percent interest.

Of course such debt targets are easily shown to be silly, since we can buy back debt issued at low interest rates at sharp discounts when the interest rates rise. If a lower debt-to-GDP ratio is important, that is the simplest way to meet it.

Ah good, there is no immediate problem, I can watch the Academy Awards with an untroubled mind.

*Per S/B: "To be credible for the long-term, we believe that the debt must be brought to below 70 percent of GDP by early in the next decade, and kept on a downward trajectory thereafter."

Garett Jones writes:


Corporations can't bear a tax burden, only people can, so the question of who even pays is it is hard to answer. IMO it's imprudent to base normative views of taxation on such a sandy foundation.

Second, to the extent the corporate income tax is a capital tax, typical dynamic optimal taxation theory says that capital income shouldn't be taxed at all. In some simple chalkboard cases, workers would unanimously prefer a pure wage tax over any blend of wage and capital taxes: workers prefer to work with more capital since that makes them more productive, and capital taxes reduce the stock of long run capital. Either Chamley or Judd have this latter result in a famous pair of papers: The implication is that in the long run every tax on capital is *solely* a tax on labor.

Plus, the rich (who may well pay most of the corporate income tax in the short run) are already paying more into the pot than they take out; I don't see any literal "debt to society" that they're accruing. Maybe there's some metaphorical debt they're accruing but I find that latter type of debt difficult to measure.

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