Laurence Kotlikoff, a “professor of economics at Boston University” and entrepreneurial financial guy, got space in the New York Times to explain that getting rid of the corporate income tax would be great for workers. Kotlikoff worked for Reagan as an economics adviser, so we can guess that he believes deep in his soul that the only reason for corporate taxes is to punish the success of the deserving rich. Fortunately, there are people in touch with reality who remember just why we tax corporations. From Citizens for Tax Justice:
First, the personal income tax would have an enormous loophole for the rich if we didn’t also have a corporate income tax. A business that is structured as a corporation can hold onto its profits for years before paying them out to its shareholders, who only then (if ever) will pay personal income tax on the income. With no corporate income tax, high-income people could create shell corporations to indefinitely defer paying individual income taxes on much of their income.
Second, even when corporate profits are paid out (as stock dividends), only a third are paid to individuals rather than to tax-exempt entities not subject to the personal income tax. In other words, if not for the corporate income tax, most corporate profits would never be taxed.
Third, the corporate income tax is ultimately borne by shareholders and therefore is a very progressive tax, which means repealing it would result in a less progressive tax system.
Kotlikoff sputters that his excellent model shows that if you give the rich more money, they’ll magically create some jobs. The Tax Analysis Center, which he heads up, uses a model his company created for profit, one supposes, and is supported by the National Center for Policy Analysis. That worthy entity describes itself this way:
Our goal is to develop and promote private, free-market alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector. We bring together the best and brightest minds to tackle the country’s most difficult public policy problems — in health care, taxes, retirement, education, energy and the environment. In doing so, we propose reforms that liberate consumers, workers, entrepreneurs and the power of the marketplace.
Sure, explains Kotlikoff, these guys are right wing nutcases, but I’m a distinguished non-partisan guy, just trying to nick a few bucks from the nutcases to support myself and my family. And, get this, his model is Dynamic! And isn’t it amazing that his model gets the results that please his donors and the NCPA? And it has one good, and five nations!
And if we just do this, we get growth!
It is just stupefying that progressives are supposed to treat this drivel as actual argument. Let’s call it the argument from MyModel, which is in every case to be contrasted with the argument from MyObservedReality. MyObservedReality says that as of 2011, corporations were sitting on $5 trillion in cash and cash equivalents, according to this January 2013 report of the Federal Reserve Bank of St. Louis. (h/t Tax Justice Network, which says Kotlikoff is an ignorant putz (my translation: they’re nicer than I am)). This enormous number includes cash held abroad as well as the amount held domestically; domestic holdings are currently estimated at about $2 trillion. Financial Accounts of the US, p. 67. MyModel proclaims that if we increase that $5 trillion by several more trillion, jobs will magically appear.
Maybe they’ll fly out of Kotlikoff’s MyModel and into the real world.