Thursday, January 05, 2017

This should not be normal

It's not just Trump.

As Rebecca Kysar notes, courtesy of Tax Policy Center estimates:

"The House blueprint ... awards three-quarters of its tax cuts to earners in the top 1 percent ....  Even factoring in favorable macroeconomic effects, the plan would also add trillions to the country's debt, creating an unsustainable fiscal chasm."

We've been too gaslighted for too long to find this surprising. But if you step back for a second and just think about it in political, social, economic and budgetary context, its reckless and malicious irresponsibility beggars belief. In no still-sane country could such a plan even be proposed by anyone, apart from tin-hat lunatics ranting on street corners.

This is not normal.  A country in which it has become normal is not normal.


Robert Goulder said...

Professor: I've been struggling with an issue related to DBCFT, perhaps your insights can influence my thinking here. It's about global competitiveness, and in particular the downward pressure on statutory rates.

I understand why a country like the UK regularly lowers its corporate rate a percentage point every few years, they have an eye on Ireland's rate. Nations compete w/r/t taxes imposed on capital income. However, I'm not aware of any competition among countries w/r/t consumption taxes. For instance, I can't imagine the UK gives a hoot about Ireland's VAT.

QSo then, how would rate competition unfold under DBCFT? Since's it's basically a subtraction-method VAT (plus a wage allowance), could the rate be relatively immune to competitiveness pressures. Would a high-rate DBCFT be any less 'competitive' than a low-rate DBCFT when it comes to capital flight/FDI?

Stated differently, would multinationals still argue for rate reductions under DBCFT? How would the lower rate help them? If it truly is a consumption tax base, then why a firm's post-tax outcome be worse if the rate were 40% rather than 20%? But that conclusion strikes me as an absurdity; my instinct says firms will always be rate sensitive.

I skimmed the writings of Devereux and Auerbach, but couldn't find much directly on point. Personally, I can't imagine a world in which firms aren't vigorously lobbying for rate reductions - even under DBCFT - which causes me to rethink whether it's really as VAT-like as many are suggesting.


Bob Goulder

Daniel Shaviro said...

I think it's widely agreed that competitive pressures to lower rates DON'T apply to the DBCT as they would under a capital income tax. The reason for lowering the rates in the Better Way, etc. proposals is simply that those folks prefer low rates in general, and not just for reason of tax competition.