The Dr. Is…

Obviously clueless. Poor Dr. Bechard, he’s ventured into territory he obviously doesn’t understand. His column is mostly about corporate taxes and some taxation policy. Now, as one fairly educated on the subject I can say that he’s entirely wrong. Competition for FDI happens on the tax front, and it’s easy to note that places with lower corporate taxes have more FDI (most of that data can be found in a 1996 book by Graham & Krugman). Why do corporations use tax havens?

Because corporate taxes in the United States are incredibly high. Dr. Bechard uses the disingenuous technique of quoting corporate income taxes as a percent of GDP. Now, I understand why one might do this, in order to get a feel for how the rate compares to the rate in other nations, scaled to the same unit. However, when comparing corporate tax rates, we must look at the actual rate that companies must pay because that is what they will be using in their decision about whether or not to attempt evasion.

For instance the OECD (one of Bechard’s own sources) has this handy table of corporate tax rates. Look at the second column from the right. Notice that 45.2%? Yeah, that’s the income tax that corporations face in the most populous region which has a rate in addition to the federal rate. 45.2% including all federal and local taxation on corporate profits. Jumpin’ Jesus on a pogo stick. My guess is that’s for businesses in NY. My point is, that unlike Dr. Bechard’s claim, the US has the highest corporate taxation in the world. Even if you just look at the federal taxation rates [less any double-payment deductions] corporations in the US pay 29.5%. That’s a pretty middle of the road number for corporate taxation rates, but it still gives a pretty big incentive to move profits around using transfer pricing, or to incorporate in Switzerland.

I’ll spare you taking the time to deal with his theories about outsourcing, or taxation being “a necessary and important aspect of social responsibility.” Except to say that I’ll agree that there do need to be some taxes, but I’m not sure there is such a thing as “social responsibility.” Oh, and Joe, please remember that taking Econ 201 does not an Economist make. Crimony.

UPDATE: Testify Brother. From The Lead:

Ever wonder why all the doom-and-gloom economic pronouncements you hear in the media, and from liberal politicians, don’t square up with the America you see around you — an America in which the economy has turned the corner and is growing again? The answer is that most of what you hear about economics is a lie, usually papered over with impressive-sounding jargon and statistics designed to intimidate you.

UPDATE II: Comments Not Working On This Computer.

In response to Erin in Comments: Yes, there is a wealth gap. But, the uncited assertion that “most of the economic growth in America is helping the already well off; since the 70s, the gap between teh [sic] upper and lower classes has increased dramatically…” is not particularly persuasive. I can say that the poverty line in America is about $18,000 of gross income per year for an individual. I can also say that there is nothing in microeconomic literature that justifies the amount of weight given to the poverty line by many policy makers and normative economists. That’s from a 1988 paper by Lewis and Ulph. In any case, this is the classic debate that’s raged since the first capitalism took hold in the 15th century…capitalism makes everyone better off (compared with socialism, or feudalism, &c.) but some people are still better off than others. Expansion of the aggregate economy benefits those at all levels of the income spectrum. That’s just a basic multiplier effect, Econ 202 sort of stuff. The question is whether or not inequality matters, my answer is no for a very simple reason: taking money from one person and giving it to another is not pareto efficient, and will cause harm to the economy as a whole. I’m more worried about the efficiency issues and problems related to those in microeconomics than I am about the value judgements associated with the normative literature. You might check out Econ 440 taught by Peter J. Lambert if you’re interested in inequality issues. He’s a normative guy, big on the whole Robin Hood thing.

This entry was posted on Thursday, October 16th, 2003 at 12:15 by Timothy and is filed under Miscellaneous. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.