Monday, June 02, 2008

Mankiw versus DeLong

In Sunday's NY Times, Greg Mankiw had a column calling for a cut in the U.S. corporate tax rate. as per McCain's campaign platform, but with the important difference that Mankiw wants to finance it (assuming it's not providentially in Laffer territory) by increasing the gas tax.

I idly thought for a moment of writing a blog entry saying that I thought this package would be a good idea.  I discuss the reasons for a corporate rate cut in my forthcoming book on U.S. corporate taxation, and am fine with the idea if it is fully financed (such as by raising the gas tax), although I think it also should be linked to shifting more of the taxation of corporate income to the owner level, such as through (a) Ed Kleinbard's cost of capital allowance (COCA) idea of time value of money-style corporate-level deductions and investor-level inclusions for equity as well as debt, and (b) doing more to impute "reasonable compensation" minimum salaries to US resident owner-employees.

Anyway, before doing anything I noted a Brad DeLong blog entry not only denouncing Mankiw but saying that the publication of his column is an example of how MSM publications are headed for the dustbin of history.

Brad's bone to pick reflects either having missed the bit about financing or considering it after-the-fact window dressing with a tendency to mislead the reader into thinking that McCain, no less than Mankiw, is actually inclined to be responsible, which of course he isn't. (McCain would no sooner finance anything than forego endless war.)

The debate has turned into a bit of semantics about how one should read Mankiw's column or think that he anticipated others reading it.  I'm with Mankiw, although it's likely true that the column's net effect on future events is to encourage an unfinanced corporate tax cut.  That's not really one's fault if one states the correct idea and is sufficiently forthright rather than slippery - a test that, in my reading, Mankiw passes.


Andrew said...

This strikes me as a great idea, but it's hard to think of a tax change that would be less appealing to the public than this one- essentially, raising the most unpopular tax there is in order to lower a tax that much of the public sees as costless.

Daniel Shaviro said...

True enough ...