Friday, March 4, 2011

Capitalism Saved the Chilean Miners


This is an old article, but it shows how the free market can do what nothing else can.

32 comments:

PBM said...

No Megan you are mistaken. Porn, blowup dolls and marijuana saved the Chilean miners.

http://nymag.com/daily/intel/2011/02/the_chilean_miners_did_drugs_u.html


But on a more serious note, yes, innovation through capitalism saved the miners, but that assumes there is some grand battle going on between socialism and capitalism, which there is not. Dems/Obama/myself believe in a regulated and tempered capitalism that is fairer to all. This type of capitalism is what has existed throughout American history and it is insincere for this author to argue otherwise. Innovation still exists in this regulated world.

You could also argue that unregulated capitalism is what got those miners stuck in the first place. There's a lot of different arguments you could make for this situation, I just don't think it should be drawn into the whole free-market debate we are having in the US. The WSJ op-ed authors obviously think this situation does deserve a role, but I think they are just being blowhards and trying to connect two things that don't really have a connection.

PBM said...

Sorry for the sass, but basically, this article does have a point in that the innovation that capitalism breeds helped save these miners, but I don't think that should have any connection to Obama or the current political debate in the US.

Megan said...

I wasn't really trying to make a partisan point with this article. I understand that most Americans do believe in capitalism, and I also understand that capitalism needs restrictions to put everyone on a level playing field and keep out corruption. I was simply showing the triumph of the free market.

But I do think that when the Government imposes unnecessary regulations and makes innovation less profitable (heavily taxing the rich etc.) you see less innovation and more economic stagnation (cough, Europe).

PBM said...

Can you back up the Europe claim for me? I know it's a popular one to make but it's also a huge generalization and I'd like to see your backup. Germany has some of the strongest exports in the world, and Europe has some of the happiest citizens in the world. There are also rich people there who invent things.

And then you say your not trying to make a partisan point when the article is all about partisan points and you conclude with a partisan point. ??

Ryan Karerat said...

Not really seeing how taxation of wealthy individuals has too much of an effect on innovation, which is what your 'taxing the rich' comment seems to suggest.

That's something that seems more relevant to a discussion of the corporate tax code. Expanding the Research and Development tax credit, allowing companies to expense in their first year expenditures of capital equipment (instead of forcing companies to depreciate investments in capital equipment over a number of years), and allowing employee training to qualify for R&D tax credits are all more useful ways of encouraging innovation than banal generalizations about the harmful effects of 'taxing the rich.' Basically, I think that we need to specify what we're talking about more, because tax reform is certainly a way of spurring innovation, but there's a difference between say... extending the Bush tax curts, and reforming the corporate tax code, if we want to encourage innovation.

Also, if we want to talk about encouraging innovation, it needs to be noted that government R&D is as much a part of the solution as private R&D, and need to be preserved in the same way we need to encourage innovation from private companies.

PBM said...

Just one more thing on taxing of the rich. Your acting like taxing the rich is a disincentive for people to get rich, which I think is just absolutely false. If rich people (over $1 million, or even $250,000), get taxed more, people aren't just going to be content making hundreds of thousands of dollars just because they don't want to be taxed more. Even if your income over a certain point gets taxed more, you are still going to strive to succeed and make money. People are always going to want to get rich, and if rich people get taxed more they still have plenty of money in the bank to innovate and go about their daily lives. Like if you or I are making $2 million a year, and we have an opportunity to make $3, we are still going to take that opportunity. We aren't going to sit there and be like "actually, I don't want more money because then it will be taxed." Even if it is taxed more, you would still end up with more money overall.

Megan said...

I don't have much time, but hopefully I will be able to respond to this better later.

PBM are you suggesting that taxes do not have an effect on behavior? Can you show proof that taxing the rich does not lead to less productivity?

Ryan, I think taxing the rich is absolutely relevant to this discussion. People innovate to make a profit. Profitable people get taxed more than people who are not profitable. The vast majority of businesses are small businesses with individuals hoping to make a profit. In my view, the individual tax code has everything to do with it.

R&D seems to be a way of taking money from all businesses and then re-distributing it arbitrarily.

PBM said...

I just wrote out a very intricate reply that this stupid thing erased so I will try again.

Yes, taxes effect behavior, but the ability to have more overall money is incentive enough to work harder, innovate, etc. even if you are being taxed at a high rate. Lets say I make $1 million. The first 250,000 are taxed by 75,000 dollars (30%), the rest is taxed at a 50% rate (way higher than what taxes actually are on the rich) which equals 375,000. So I'm taxed by 450,000 and make 550,000 overall. Now lets say I make $2,250,000 (just to make math easier). I get taxed 75,000 for the first 250,000 then I get taxed 1 million for the rest. Therefore, my overall money is 1,175,000. If I start out making one million and keeping 550,000, but have the opportunity to make 1,175,000 overall if I increase my income to 2.25 million, I am still going to take that opportunity because I would end up with more overall money. So unless tax rates are like in the 90-100% mark on income over the 250,000 or 1 million threshold, people will still have an incentives to make more money.

PBM said...

Further, if I make 25,000 and it isn't taxed at all, I still only have 25,000 dollars and an incentive to make more money.

Ryan Karerat said...

The number of small businesses that report taxable income of $250,000 or more is at around 2 or 3% of total small businesses. So let's drop this charade that small businesses are somehow the true victims of Obama's tax policy, because the vast majority of small businesses are not in the top 2 marginal tax brackets. Small businesses amount for about a quarter of total US economic output (with the larger corporate sector making up around half of total US economic output). Which means that small businesses who are facing *slightly* higher marginal tax rates under Obama account for between half to 3/4 a percent of total US GDP, tops.

Complaining about 'taxing the rich' and justifying that by playing the small business card is an often used yet mostly irrelevant tool. You're arguing at the margins and ignoring the real debate.

"R&D seems to be a way of taking money from all businesses and then re-distributing it arbitrarily."

Um, what? Research and Development is a means of 'arbitrarily' redistributing wealth? I thought it was a way in which entities research and develop new technologies.

You're now against tax incentives for those that innovate? Isn't one of your big problems with 'taxing the rich' that it prevents innovation? Color me confused as to what the logic is here.

PBM said...

"R&D seems to be a way of taking money from all businesses and then re-distributing it arbitrarily."

Putting money into research and development of new technologies is not arbitrary. It helps our country gain an edge in certain industries, which is essential in a competitive world economy. And you don't seem to have an actual understanding of the R&D tax CREDIT. Companies who invest more in R&D get money back from the government. It's not being taken "arbitrarily" and spread around "arbitrarily" as you seem to think.

Ryan Karerat said...

http://www.taxpolicycenter.org/UploadedPDF/411606_income_tax_favor.pdf

Paper is a couple of years old but provides a decent look at the ways in which the tax code can favor small businesses.

Ryan Karerat said...

Actually I should amend what I said before about the small amount of small businesses who face higher marginal tax rates under Obama, because as of now obviously with the Bush tax cuts being extended they do not face higher rates yet. What I should have said was, 'under Obama's proposal to let them expire in 2012.'

Megan said...

I am not opposed to the R&D tax credit. I just don't see it as an excuse to soak companies in taxes (because we're investing in R&D!). The R&D tax credit benefits some industries more than others and tends to benefit bigger companies with already more advanced R&D technologies. The effects of the R&D tax credit on incentives has been arbitrary and it has not been proven to have spillover effects of social benefits (which is the primary purpose of R&D investment). Many companies are confused about how to use the R&D tax credit to their advantage so naturally larger companies with analysts are able to utilize it to their advantage.

That's not to say I am opposed to R&D tax credits. I support them much more than direct R&D subsidies because the government has proven to be very poor at determining which projects will have social benefits.

Government economic policies rarely have equal incentive effects on everyone involved. The incentives to innovate ARE ALREADY there. So by taxing away the incentives and then putting them back into the economy (yes, somewhat arbitrarily), the government is messing with the market. But of course government knows best, and should probably just take control of all our incentives to produce the best outcomes (which are RARELY produced).

PBM I understand the tax structure. But you are opposing basic economic theory by saying that higher taxes do not result in less productivity. Taxing someone 50% is obviously going to have an effect on their behavior.

The government "we know how to spend your money better than you do" attitude is what I have a problem with.

PBM said...

Ok, two things. First, the incentives to innovate are not already there for every industry. Take for example the energy industry. Most industries use about 10% of revenue to invest in R&D. Energy utilities and fossil fuel producers, however, use no more than 1%. Don't you think that it is important for this group to be using more of its massive profits to help develop clean energy technologies? They are starting to wade more into this type of R&D, but their efforts are thus far pretty pathetic, which is why government needs to create incentives for R&D in industries that are essential to our competitiveness in the future. And please give examples when you make a huge generalization like this one:
"government has proven to be very poor at determining which projects will have social benefits. "

Without government investments we wouldn't have fridges, we wouldn't have the internet, we wouldn't have high-tech goods, among a whole rang of other things. These things I mentioned all have a lot of social benefits, point out a project to me that doesn't have social benefits when you make a sweeping generalization like that.

I know that you digest a lot of right-wing media, just as I do left-wing, but don't bring talking points into an actual discussion unless you can back them up with actual evidence.


Now, on tax policy. Yes, higher taxes effect behavior. But if you actually look at my example, having more money, no matter how much it is taxed, is still an incentive to be productive. That being said, there has to be a balance. I understand that at some point (it would have to be like 70-100% taxation of income over 1 million), taxing too heavily will be a disincentive for people to get rich. I'm sure there are other behavioral effects of a 50% tax, but as I said before, everyone will take the opportunity to end up having more money in the bank, and I think your "economic theory," is just that, theory.

Now, on the "government knows how to spend money better than you do" point. Without government, are private businesses just going to start building roads, highways, airports, train stations, public transport, and schools? Government has to allocate resources to these things. Yes, there is some waste, fraud and abuse, but the majority of things government is spending money on are not wasteful and actually help our society.

Megan said...

I agree that government R&D investment is necessary. I am not opposed to government R&D. I was simply making the point that government investment in R&D (in the form of tax breaks, grants, contracting, etc.) does not mean that we should tax the incentives out of businesses and individuals (which can absolutely be taxed out through the corporate OR individual tax codes). Also, Government R&D investment is not always as productive as it can be (and never as productive as private R&D investment-not a generalization, a fact) for these reasons:


1. R&D tax breaks can be somewhat aribitrary (for reasons I already explained).
2. In many instances, companies use R&D tax breaks to carry on with projects that they would have anyway.
3.Tax breaks do not take into account that innovation does not always require R&D.
4. Yes, Government is not always good at picking the projects which will have social benefits. There are examples throughout history- most recently the billions spent on ethanol R&D and subsidies come to mind.

It is not a generalization, but a fact that most of our innovation has been a result of the market not the government. By relying on only government r&d (or government provided incentives) we may lose some of the innovation of the market. This is not to say I am opposed to government funded R&D. It is necessary to fund projects that would not normally be funded that have spillover effects of social benefits. It is not an excuse however to soak individuals and companies in taxes.

My home state of New York for instance destroys companies with taxes. Unemployment is high, the economy is terrible, and many of the millionaires have moved away. Then it tries to introduce all these incentives for businesses to hire people and innovate when the best way to achieve these goals would be simply to lower taxes.

My main point is government R&D spending is good AND necessary, but it will never take the place of market R&D and innovation that occurs naturally.

The internet, by the way, was funded by defense spending, something Democrats have been trying to cut for years.

PBM said...

All of my points have, again, been erased, but I will try to sum them up again. I think that government should be effective and efficient, which means targeting certain industries with R&D cuts that could help make us more competitive on the international market. I hold the same principles on regulation, that they need to be targeted in an efficient and effective manner. Just because I support government spending, doesn't mean I think it should be thrown haphazardly all over the place.

Also, you are assuming that if you give companies R&D breaks, that you have to tax everyone else more. That seems to go against your Republican ideology that seems to think that all tax cuts pay for themselves. You can't say that for cuts you agree with and then say something different for ones you disagree with. Who is getting taxed more so that the government can provide R&D breaks to certain industries?

You say that government R&D is never as efficient as private R&D in a very matter of fact manner. I can actually point out a counterexample pretty easily. The Dept. of Energy has a program called Sunshot that will make solar power cost-competitive with fossil fuel power by 2020. We can debate solar power's efficiency, but I think we all know it will be a big part of our energy future. Private R&D has not come even close to making solar power more cost effective since the technology was developed.

You then talk about how R&D cuts go to companies who would carry their projects on no matter what. I think this is bad and part of an inefficient and ineffective government. That doesn't mean that we shouldn't give out the tax breaks to begin with, it just means they need to target specific industries for specific reasons (international competitiveness)

Then, you go on to say that innovation does not always require R&D. R&D, again, means RESEARCH and DEVELOPMENT. If a company that sells goods wants to sell a new good, they are going to research it and then develop it. It may not be the same with service industries, but a majority of new products needs to be researched and developed. That doesn't mean they need tax breaks, but R&D tax credits and R&D itself are two different things.

With your next point about government not always picking the right things to invest in, I agree. But that means it needs to be better about what it invests in, not just stop investing in things altogether.

Sidenote on ethanol R&D and subsidies. There are two types of ethanol, cellulosic (made with algae) and corn ethanol. Cellulosic does not effect food prices and does not have the same negative environmental consequences that corn ethanol does. It is also not developed, which is why it needs, and receives most ethanol R&D tax breaks. Corn ethanol receives most of the ethanol subsidies. This is due to the corn lobby's immense power over BOTH political parties. The efficient, effective government I have been talking about would stop giving subsidies to produce corn ethanol, but would continue providing support towards cellulosic, because that is a successful program.

Then you say that relying on only government R&D never works. That is why are extremely moderate President has proposed public-private partnerships to direct R&D more effectively and efficiently.

PBM said...

You go on to say that government supported R&D is no reason to "soak everyone else in taxes." Government R&D is part of the 12% of our budget that is discretionary spending. Most taxes target specific parts of industry to help pay for regulation, or more benefits (both health care examples.) Government doesn't do this with R&D because that would be backwards. Its R&D comes from taxes, but not necessarily the ones you are citing specifically. Even so, it makes up a tiny portion of our budget.


"My home state of New York for instance destroys companies with taxes. Unemployment is high, the economy is terrible, and many of the millionaires have moved away. Then it tries to introduce all these incentives for businesses to hire people and innovate when the best way to achieve these goals would be simply to lower taxes. "

First, please list some companies that New York State taxes have "destroyed." Their corporate tax rate is ranked 24th among all states. Secondly, according to the Bureau of Labor Statistics, New York State's unemployment rate is 8.2% right now which is lower than the national average. Third, which millionaires have moved away? Is it the Wall Street executives that have continued to collect record bonuses year after year? Please, just provide some sort of data or proof when you make such bold claims. You could be right, but just saying that millionaires are fleeing your state doesn't prove anything to me.

8. "The internet, by the way, was funded by defense spending, something Democrats have been trying to cut for years."

And on your last extremely partisan point, I go back to my model of an effective and efficient government. Democrats now want DoD to be more responsible and accountable with it's funding. It has identified programs that are wasteful, and those cuts will be supported by Democrats. You are being completely hypocritical by saying the government shouldn't use money, unless its thrown blindly at DoD. And its not even like Democrats were successful in their previous attempts to cut spending and even if they were, I would like you to show me where in the budget past Democrats were trying to cut the R&D that helped create the internet. Just because we would like to spend less on defense, doesn't mean we want to cut programs that could be efficient and effective in the future.

PBM said...

Generalization that you, Fox News, Tea Partiers, and Republicans in general are making like "government is bad at everything," "government is never as efficient as private markets," "cut spending", "regulations are unnecessary" and so on are bad for our political debate because they don't take reality into account. The debate should be over how to make the government we have more efficient. If we cut haphazardly, as the House GOP has done, then you risk making government even less efficient by cutting funding for a whole host of successful programs. I'm sorry for the sass, but this is why I am asking you to provide evidence with your claims, because without evidence, they shouldn't be part of legitimate debate.

Megan said...

I think you are misinterpreting what I am saying in regards to government R&D (including R&D funded incentives). BOTH ARE NECESSARY. I am not against either (in defense spending or anything else). But neither are an excuse to raise individual and corporate taxes without fear that we will lose serious private sector innovation. I am not saying that R&D tax breaks make everyone else pay higher taxes. They do not, but some people point to them and try to make the case that because the government is investing in R&D through tax breaks and public R&D investments it is impossible to tax out innovation (as Ryan seemed to be saying earlier). R&D tax breaks do not cover the whole private sector (as they are not intended to) so this public-private sector partnership whatever Obama likes to call it is not an excuse to tax individuals and corporations at higher rates. I don't think we are disagreeing about government R&D funding. We both agree it has a purpose. (Sidenote: I know what R&D stands for. Not all innovation does require higher R&D spending. A large percentage of private sector innovation occurs through bettering existing products. Also innovation is a creative process. It does not always require more R&D funds just creativity among employees. That was the point I was trying to make.)

So I think our main disagreements have to do with the efficiency of government and the effects of taxes (individual and corporate). I am not sure that we will ever agree in these areas, but nevertheless I will make my case.

First of all, never say never. It was a mistake to say "Government R&D spending is never as productive as private sector R&D spending" I should have said "Government R&D spending is rarely as productive as private sector R&D spending". I will even be so bold to broaden that and say government is rarely as efficient as the private sector. I don't think I need anymore evidence than the massive failure of communism and socialism (when governments tried to take control of everything) and the success of capitalistic societies, but I will provide you with some. Adam Smith's Wealth of Nation nicely lays out why the government is less efficient than the private sector.

New York may be 24th in corporate taxes, but it has the highest state-local income tax. People are leaving the state. In 2009, New York ranked first for people leaving the state (can't find new data for this but I'm sure it's still high). Moreover, I have seen people leave and know many people who are thinking about leaving. Here is commentary about a great speech by one of the richest men in my part of NY (who left and went to Florida)- http://www.syracuse.com/news/index.ssf/2009/06/how_tom_golisano_flipped_contr.html The unemployment is lower than the national average, but no one would argue that 8.2% is low, and many have argued that the low unemployment is a result of people leaving the state. Also, New York has HUGE deficits despite its huge taxes. So it seems to be going by the "tax more spend even more" theory. Oregon raised its income tax on the richest 2% of its residents last year to fix its budget hole, but now the state treasury admits it collected nearly one-third less revenue than was projected. There is much evidence that wealthy people leave states with high income taxes.

Megan said...
This comment has been removed by the author.
Megan said...

I can cite for you every small business I see struggling in New York or every wealthy person I know who has left or is considering leaving if you would like.

Megan said...

and if you're looking for specific examples of government inefficiencies, the post office is broke and amtrak costs more than flying.

Patrick_Landers said...

Megan, studies looking at the impact of high tax rates on business and individual flight are notoriously mixed. My understanding is that the consensus of these studies is that cutting total state and local taxes paid by businesses in a state by 10 percent — a very large reduction — is likely to boost economic output and jobs by only 2 percent to 3 percent. Here’s one example (sorry for the weird format- I couldn’t access the pdf directly):

http://docs.google.com/viewer?a=v&q=cache:TWrrlFQTc2QJ:www.princeton.edu/~cristo/Millionaire_Migration.pdf+Cristobal+Young+and+Charles+Varner+millionaire+migration&hl=en&gl=us&pid=bl&srcid=ADGEESjd84H27oVcSr54Q2nl73ACFJaZBizhj3To1E9LvR_5c3TBbIHbtAnJCY4l7kBnrQfp0DyRhFkpTmP4SVnbCLM3hZeMcQ-8oI3xDineNyR9I_wviszneRK9h4qvfSbyjpxAq-i3&sig=AHIEtbQq-ZtWTPHxf1VrW_S5GdyCn4krFw&pli=1

Here’s a Politifact article that checks on this type of claim made in New Jersey related to estate taxes: http://politifact.com/rhode-island/statements/2011/feb/13/ocean-state-policy-research-institute/ocean-state-policy-research-institute-says-rhode-i/

There so many other factors that individuals, but more importantly businesses, take into account when making decisions about where to locate besides just taxes. Land, real estate, and housing prices (which are not related to taxes), labor force quality (New England Midwestern states have much better educated work forces- partly because of a larger government presence based on more tax revenue), climate (Florida is nice and warm), infrastructure (more spending can help with this-the Chamber of Commerce loves Obama’s transportation proposals because they know it’s incredibly helpful for business. Our nation has an incredibly successful freight rail system, and the government Highway system has been a huge boon for businesses), access to markets and consumers (which are constantly changing for a variety of factors), etc. The list goes on.

Corporate tax rates and their impact on businesses bottom lines are quite small in comparison to all of these other factors affecting business decisions. A large part of our state (and federal and local) systems’ problems are that they are antiquated in how they collect a very modest amount of revenue (very low in both a historical and international sense). The problem is that these systems do so through very inefficient and antiquated means. The corporate and individual tax codes could easily raise the same amounts of revenue with far less detrimental economic impact- the problem with taxes shouldn’t be characterized as “raising too much revenue- the government is just using it to spend more, etc..” The systems’ problems are that they are too complicated and inefficient for what we’d like to do with them. A large part of the tax code is actually used by governments to satisfy special interests (specific businesses and industries) or enact social policy in a circumspect fashion. These tax-code based entitlements, which is what they are for all intents and purposes, are generally more regressive and less efficient than if the government were to just tackle these issues through direct expenditures.

On the Oregon observation, here are two points rebutting these WSJ-fueled claims (I know I’m just posting links- but I’d just copy what they say anyways) (And yes, these are left-leaning think tanks, but they point out a lot of simple factual points which seem difficult to refute): http://www.blueoregon.com/2010/12/facts-and-logic-go-missing-again-wall-street-journal-editorial/ and http://www.itepnet.org/pdf/or_wsjmigration_1210.pdf

Patrick_Landers said...

I agree with you that taxes have costs. High marginal rates are particularly detrimental. Free markets and capitalism are essential to improving living standards. However, all of these statements and positions need to come in moderation. We need to consider the benefits from programs financed by taxes. We need to look at how a completly unfettered economy impacts everyone. A completly unregulated system would be disastrous and actually incapable of growing- people ignore that throughout history (and i'm talking ancient as well), states and governments have modified/altered free markets. The American middle-class was created post-WWII in large part by numerous government actions. Conversly, a completly regulated system/economy obviously wouldn't grow or exist. Everyone can agree that there is a balance that we need to find- the question is where do we draw this line. When drawing these line we need to think hollistically- taxes and spending simultaneously, or future growth and inequality. Sometimes these things aren't opposing, but actually mutually reinforcing forces. Limiting inequality can actually increase equality of opportunity, which will make our economy more efficent, innovative, and capable of sustaining long-term growth.

Megan said...

I agree with much of what you said. I don't think me or any other conservatives favor a completely unfettered market.

I particularly agree with your comments on the tax code. The tax code is riddled with carve outs and loopholes. Politicians have tried to use the tax code to incentivize economically inefficient actions and to provide money to special interest groups. These added incentives and loophole make the tax code arbitrary. Also, there are many short term provisions in the tax code that companies are unsure about. The tax code needs to be drastically simplified and revised. My problem is that while Obama wants to "cut out the loopholes" in the tax code he also wants to use the tax code to produce incentives and boost the public-private business partnership that he likes to talk about. One of the major reasons the loopholes exist is because politicians like to add all these incentives in the form of tax breaks! So basically Obama is saying "I want to get rid of the loopholes I don't like, but keep the ones I do like."

Where I disagree with you is on the topic of tax competition. Liberals and conservatives alike admit that tax competition is happening not only on a statewide but also on a nationwide scale. Companies are outsourcing jobs to countries with lower corporate taxes. I have witnessed people leave New York State ONLY because of the high taxes and they take hundreds of jobs with them. It only makes sense that businesses and individuals would move to places with lower taxes, and this is what is happening.

Megan said...

If we cut out many of the loopholes we would be able to raise just as much revenue WHILE lowering corporate tax rates so that we can compete on an international level, which we are not doing now. (I think we are in agreement about this. not sure)

PBM said...

I'm not gonna wade into the statewide flight of millionaires but I want to say some things about corporate taxes and tax breaks. The reason Obama wants to cut some subsidies, and tax breaks but not others make perfect sense when you look at the energy sector. Oil, coal and natural gas companies are some of the most profitable companies in the world and yet the U.S. continues to give them extensive tax breaks that range somewhere between $20 and 50 billion over ten years. Obama would rather put that money towards renewables because it would help the industry get off its feet, and would help develop new technologies that could make us less dependent on fossil fuels. So, at least here, Obama is right to prefer some subsidies/tax breaks over others. We shouldn't be giving some of the most profitable companies in the world more money, but we should help support the nascent clean energy industry because it will help us be competitive in the future. That's just an example, and it doesn't mean that I'm always right on this and your always wrong. I think we need to get rid of a lot of the tax breaks and loopholes on the book, but we need to do that carefully because there are some tax breaks and loopholes that are actually helpful and successful.


You then say that we need to lower corporate tax rates to maintain our competitiveness. I'm sorry to break this to you, but we already have some of the lowest effective tax rates in the world. Here's a thinkprogress report on some large, successful U.S. companies that don't pay anything in U.S. taxes.

http://thinkprogress.org/2011/02/26/main-street-tax-cheats/

So, what I'm saying is you support lower corporate taxes, and that by ending all of the loopholes in the system, we can lower rates. The problem with this is that it would actually be a raise on corporate taxes for a lot of companies who pay almost nothing now. I don't know where my argument is really going, but you say you support low taxes to keep us competitive. We already have those right now because of the amount of loopholes in the system, so if we take those out and raise the rates, companies are going to be taxed more, which in your theory, makes us less competitive. I'm not trying to say your wrong or anything, this is just a pretty complicated topic that seems easy in theory.

Megan said...

We have a lower effective tax rate than most because of the loopholes. We actually have the highest corporate tax rate out of all the OECD countries, but when you look at the effective tax rate it is lower because of the loopholes. I think Republicans and Democrats can agree that this is a problem because it favors some industries and businesses making them more competitive on an international scale, but it does not favor most businesses and industries.

There is hypocrisy on both sides because Democrats want to limit the subsidies provided to big evil businesses while keeping the subsidies of their choice while Republicans also want to take out loopholes except for the ones they like (such as lower taxes on investments which are meant to incentivize investments.)

I worry that the tax code is not the place to incentivize people because added incentives have all sorts of wacky results (such as some rich people having lower effective tax rates than poor people because they get a large portion of their income from investments). Many would argue that it IS the most efficient place to produce incentives, but I tend to think it is not because the results are rarely what they were intended to be.

By the way I miss you guys (PBM and Patrick) and wish I could see the real you (not just the blogosphere you) so that our only form of interaction isn't arguing! although I do love our debates.

Megan said...

Also, we may be the only 3 people consistently on the blog during break.

Patrick_Landers said...

haha Megan, I was thinking the same thing! You, Peter, me, and Professor Eismeier. We just can't let go.

PBM said...

Yeah me too. And also, I agree with your last point about the tax code. I just think it will be tricky for Republicans, because in many cases eliminating loopholes and subsidies can and will actually be considered raising taxes on corporations, which most Republicans are whole-heartedly against.