Corporate income taxes

Meant to write about this really nice Davie Leonhardt piece on corporate income taxes.  A little late, but I would be remiss if I didn’t plug this in the blog.  The gist:

Of the 500 big companies in the well-known Standard & Poor’s stock index, 115 paid a total corporate tax rate — both federal and otherwise — of less than 20 percent over the last five years, according to an analysis of company reports done for The New York Times by Capital IQ, a research firm. Thirty-nine of those companies paid a rate less than 10 percent.

Arguably, the United States now has a corporate tax code that’s the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades.

“A dirty little secret,” Richard Clarida, a Columbia University economist and former official in the Treasury Department under President George W. Bush, has said, “is that the corporate income tax used to raise a fair amount of revenue.”

Over the last five years, on the other hand, Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ.Southwest Airlines paid 6.3 percent. And the list goes on:Yahoo paid 7 percent; Prudential Financial, 7.6 percent;General Electric, 14.3 percent.

And, why can’t we remedy this?

Economists have long pleaded for an overhaul of the corporate tax code, and both President Obama and Republicans now say they favor one, too. But it won’t be easy. Companies that use loopholes to avoid taxes don’t mind the current system, of course, and they have more than a few lobbyists at their disposal.

Classic example of policy that’s really hard to benefit.  Those that get the loopholes currently, reap huge benefits, so fight tooth and nail to keep them.  For the rest of us, we just put up with a slightly dumber and less efficient tax system, so the marginal impact isn’t worth fighting.  Damn.  Sometimes politics just sucks.

 

 

The picture and the story

Don’t let the facts get in the way of a good story.  The Cary News has a nice story about how my kids’ elementary school has been nationally recognized for serving low-income Title I students.  Seems they got a nice photo of three kids working on the computer, including my firstborn (the red-head, if you don’t know better):

KINGSWOOD1.CN.020211.EDR.JPG

Alas, David is certainly not in the Title I program and I strongly suspect neither is the boy sitting next to him, as he lives down the street (not the nicest neighborhood, but solidly middle class).

Recently, I mentioned this Title I honor to my step-mother, who was upset that the kids’ school has a Title I program.  Needless to say, she’s Republican.  I borrowed from Stephen Colbert and replied that I wasn’t too worried about the poor rubbing off on him.

Broccoli Mandate

Opponents of the Affordable Care Act have been making the argument that if the Individual Mandate can force us to buy health care insurance, then the government can force us to buy anything, i.e., the government can force us to buy broccoli.  Of course, given that money is fungible, this is already true.  Matt Yglesias does a nice job showing how the individual mandate isn’t really all that different from forcing us to buy corn, i.e., corn subsidies:

Legal issues aside, I really think these efforts to scare people with the specter of unlimited government founder on the fact that any government empowered to levy excise taxes is conceptually pretty much unlimited. The government is allowed to tax everyone, and use the revenue to subsidize broccoli consumption. Now maybe you think that’s legally distinct from the idea of fining people for failure to consume broccoli. But the practical impact is identical. Whether or not non-eaters of broccoli end up subsidizing broccoli consumption has everything to do with congressional politics and nothing to do with the Supreme Court.

In the specific case of the ACA, the stakes are in fact quite high. That’s because the 111th Congress favored the ACA whereas the 112th congress doesn’t. So if the Supreme Court undoes the law, the votes won’t be there to re-achieve the same thing through a technically different process. But that’s just the same as the case of the broccoli mandate. We don’t have a broccoli mandate because there’s no congressional support for a broccoli mandate. If congress decides to financially penalize people for not eating broccoli (as it currently penalizes people who don’t eat corn) then it will do so and the Supreme Court has no way to stop it. What’s happening now is a quirk of America’s odd legislative process.

Credit Card Economics

Terrific column by Steve Pearlstein yesterday on the evils of credit card companies.  If you use a credit card, you should read the column.  If you don’t use a credit card, you are totally getting screwed by the people who do.  Guess what, all those rewards, cashback bonuses, etc., you get with your card, they’re not free.  The cards pass those costs on to merchants who pass them on to us in higher prices.  Basically, it ends up being a transfer of money from well-0ff people who use their cards a lot to the less well-off that don’t, along with the credit card companies raking in huge profits by taking a cut from every transaction:

When all is said and done, all that’s really happening is that the credit card companies are taking money out of your left pocket, setting aside a hefty fee for themselves and putting what’s left back in your right pocket.

Only it’s worse than that. Because while everyone pays the higher retail prices necessary to cover the “swipe fees,” only those with rich rewards cards actually get the kickback. In effect, they are subsidized by those who pay those higher retail prices with cash, debit cards or standard-issue credit cards.

The real killer that the credit card companies use their absurd amount of political clout to prevent legislation to make this a well-functioning transparent marketplace.  Much like Wall Street, their outisized profits largely depend upon consumers not actually understanding what’s going on.  There’s a pretty straightforward set of remedies for this– regulating the credit cards just as the government finally regulated debit cards to ensure a transparent market:

In the end, there is only so much under existing antitrust law that the Justice Department can do. Given the hammerlock that Visa, Mastercard and American Express have on the market, the only sure way to prevent them from charging excessive fees and earning monopoly-like profits is through direct regulation. Congress recently mandated just that for debit-card fees, which the Federal Reserve now proposes to cut by more than 80 percent. It was only political push back from the banks and credit card companies that prevented similar regulation of credit cards.

These guys own Congress– R and D.  I’m not holding my breath.  Still, I have been making more of an effort to use cash and debit cards.  You should, too.

 

http://www.washingtonpost.com/wp-dyn/content/article/2011/02/05/AR2011020504377.html?hpid=topnews

Follow

Get every new post delivered to your Inbox.

Join 525 other followers

%d bloggers like this: