Tax "Reform"

"Reform" is one of those words like "change" or "improvement." The beauty is in the eye of the beholder.

I say that in light of all the talk of our national leaders' desire to "reform" the tax code. Call me cynical, but I tend to think that every time they "reform" the tax code, it seems like the well-to-do get a tax cut they probably don't really need, and either the deficit gets structurally worse or those who can't really afford an increase in their taxes get one nonetheless. After all, those school teachers are "lucky duckies" while hedge fund managers have to get by on ONLY a few million per year, but I digress.

I have seen the recent ads on TV and heard them on the radio, trying to influence our lawmakers to "reform" the tax code. There is all kinds of talk about how people can't get good-paying jobs because of our tax code. Disingenuous as ever, particularly given that corporate profits are at a post-war high as a share of GDP, and wages are at an all-time low. 

Corporate profits as a share of GDP since the end of WWII

Wage trajectory from 1960-2012

I thought I was the only one to notice how cynical these ads , until I saw this piece by Matthew Yglesias at Vox. 

Here are a few key excerpts:

Obviously many Americans have lost jobs over the years and often subsequently struggle to get new jobs that pay as well as their old ones. But corporate income tax is a tax companies pay on their profits. If your employer is paying any corporate income tax at all, they are making money. If your employer is being driven out of business by the Chinese, they are not making profits or paying taxes on them.

Can't help but agree with that. I fully recognize that our tax system has too many loopholes. However, I also recognize that every loophole in our tax system has a constituency. There is a reason that big businesses pay so little in taxes.

More excerpts:

A more honest accounting of the case for a corporate tax cut would go like this.
The corporate income tax is, in the grand scheme of things, a kind of tax on capital and business investment. Many people believe — with some support from economic theory and well-known models — that taxes of this sort are harmful to long-term economic growth. With lower taxes on investment income, there will be more investment. And more investment will, in the long run, create a large stock of capital goods and thus more jobs and higher wages for everyone.
The best empirical research on recent tax changes tends to contradict this line of reasoning but it’s certainly a subject about which well-qualified economists disagree.

That said, one subject on which there is very broad agreement is that corporate profits are currently quite high. 

If a business isn't making any profits, it's because the business has a business-model problem. It is not because taxes are too high. Further, when corporate profits are at record highs and wages are at record lows, it seems a little too cute to try to sell the idea that taxes are precluding wages from rising. Since a picture is worth a thousand words, here is an interesting data point:

The effective corporate tax rate appears to have largely gone one direction in the past 70 years: down.

As I've said numerous times before: If your policies are so awesome, you should not have to lie about them to get them passed. If you're lying about your policies, perhaps it's because they're terrible.

Too often, people are bamboozled into the following fallacy:

1. There's a problem
2. We need to do something
3. "This" is something
THEREFORE
4. Let's do "this."

As our national leaders debate their tax "reform," let's all be sure to ask what they are doing to reform the system. What is "this"?