Rational World

The American Enterprise Institute (AEI) posted this article on their Ideas blog. The article references a report by the Potomac Research Group. The Potomac Research Group concluded that the US could start running surpluses by 2015! This of course assumes that the sequester is still in effect and the GDP hits a growth rate of at least 4%. Here is a quote from the Potomac report via AEI:

“[O]fficial forecasters will have to radically alter their projections this summer. […] [I]f the economy finally lifts off in 2014-2015, with GDP growth in the 4% neighborhood — with the sequester still in place – a surplus by fiscal 2015 is not totally out of the question.”

The AEI then goes on to bemoan the fact that a balanced budget would ruin the momentum of debt reduction policies and entitlement reform.

This is why I love politics. After years of haranguing us about the Democrats’ anti-market policies and unbalanced budgets, the AEI is now unhappy because the budget might be on its way to being balanced, and if the government runs surpluses no one will want to cut “entitlements.”

The Internet sales tax is something rare in an era of unprecendented corporate influence: it’s fair. ampro.me/15ke1xO

— The Prospect (@theprospect) May 6, 2013

“There shouldn’t be special incentives in the tax code to buy from Amazon instead of your local retailer,” says Carl Davis, a senior fellow at The Institute on Taxation and Economic Policy, the research arm of Citizens for Tax Justice. […]

There’s no question that local businesses are hurt by e-commerce; a 5-10 percent off-the-top price break is considerable. […]

“Poorer families pay a larger share of their income in sales taxes than better-off families do because they have to spend almost everything they earn,” Mazerov said. “Tax-free Internet shopping compounds the problem: Many low-income families would love to shop online to avoid sales tax but can’t because they don’t own a computer or can’t afford high-speed Internet access.””

-Jeff Sanigor, The American Prospect.

 So, while the government is proposing cutting corporate taxes, it is also trying to impose a new sales tax. The American Prospect is promoting the Internet sales tax as being fair, but is it really?The author of this article makes some solid points about wealthy vs. poor shoppers, however he is missing the bigger picture; the nation’s tax burden is being shifted away from corporations and on to people like you and me.

(Source for the graph.)

Since the 1980s individuals have been carrying a larger and larger share of the tax burden. Imposing an Internet sales tax and then cutting corporate taxes will continue this trend. As of 2011 tax revenue from individuals has rebounded yet revenue from corporations is still down significantly. What is more disconcerting is that this re-alignment of the tax burden is happening at a time when unemployment remains persistently high, wages are stagnant, and corporate profits are at all time highs. 

Is this really fair?

US President Barack Obama has emphasized the need for additional revenues as part of a balanced plan to reduce future deficits, but is also proposing to cut the corporate-tax rate. While this approach may seem inconsistent, there is a strong pro-growth rationale for pursuing it.

Higher investment in the US by both domestic and foreign companies would boost economic growth, while the resulting increase in capital – new businesses, factories, equipment, and research –would improve productivity. That should, in turn, boost real wages over time (although the link between productivity growth and wage growth has weakened during the last two decades).

-Laura Tyson

Here is an idea, to somewhat correct the divergence between productivity increases and wages, any reduction in the corporate tax rate should be linked to wage increases.

Although, it may be necessary to first ask if it is even necessary to reduce corporate taxes when many corporations barely pay any taxes at all.

Economic inequality in the USA has been increasing since the early twentieth century. Is de-regulation the cause? Or is it due to an economic shift toward the financial sector or the “particular values esteemed in American society”?

“Some of the most powerful and sophisticated actors on the world stage today aren’t governments, they’re companies. While some global businesses show consideration for the people whose lives they touch, many don’t. Whether through incompetence or design, some companies seriously harm the communities around them, their own workers, and even the governments of the countries where they operate. […]

History’s long and growing catalogue of corporate human rights disasters shows how badly companies can go astray without proper regulation. Yet many companies fight to keep themselves free of oversight, as though it were an existential threat.”

-Chris Albin-Lackey, World Policy Blog.

Albin-Lackey includes some proposals of how governments could regulate MNCs. However, one problem with all of the proposals-as mentioned in the above quote- is that corporations often resist even the slightest attempt at regulation tooth and nail, as if it poses an existential threat. These attempts to thwart oversight are usually successful since MNCs are wealthier and more powerful that many of the world’s governments; even many western governments are being brought to heel by the immense wealth concentrated into the hands of these corporations.