Why can’t I have an opinion about corporate taxes like anyone else?

A colleague here at SCU shared with me this:

“Corporate taxes account for about 10 percent of the total tax take, at $273.5 billion in 2013. Lawrence Kotlikoff, an economist at Boston University, calculates that eliminating the corporate tax, while raising income or consumption taxes to compensate, would produce a dramatic growth spurt in the U.S. It would increase investment, permanently raise wages by 12 to 13 percent and boost gross domestic product by 8 to 10 percent. Eventually, the growth alone would be enough to make up for the lost tax revenue. “Most economists agree this is really hurting workers rather than owners of capital,” says Kotlikoff.”

See whole article here.

I responded with the following thoughts.  I’d be the first to admit that I know almost nothing about this kind of modeling; not something I have ever done.  But I know enough to know that there is more to this kind of modeling than solving the model itself.  Corporate profits have hit all all-time high (nominal and real) in the United States.  Why would one think that this corporate after tax profits were even higher because of an elimination of taxes that somehow that would unleash some kind of growth spurt?  Another point: this is pure macroeconomics hubris, isn’t it? Macro speculation like this is unknowable even to our most basic knowability standard… does Kotlikoff have anything close to an externally valid natural or random experiment (of large wealthy economy in a growth funk that did something like this)? Education economists don’t even know whether class size reduction from 27 to 24 is a net good thing, how could we possibly *know* enough to speak so confidently about an issue like this? I love the rhetoric of “12 to 13 percent” as if the gap were an issue of technical assumptions and the gross were unassailable… neat. I guess my objection is to “would”… reporter should have written “could” or “might”….  A final point: Some people (libertarians I would think) should object to a policy designed to enable the “large corporate” sector to get even bigger. No need to make self-employment and single proprietor businesses even less attractive….

About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
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