By Jon Hartley
Tuesday, April 16, 2019
This week, Senator Elizabeth Warren’s 2020 presidential
campaign unveiled a radical proposal to levy a minimum 7 percent corporate tax
on U.S. companies making more than $100 million annually, with the goal of
raising around $1 trillion in new revenue. This comes on the heels of Warren’s
proposal to institute a new 2 percent wealth tax on all individual fortunes
above $50 million and an additional 1 percent tax on all fortunes above $1
billion with the objective of reducing wealth inequality.
Unfortunately, the higher corporate taxes and wealth
taxes Senator Warren advocates are among the most inefficient ways of raising
tax revenue without harming the economy.
Corporate taxes have been shown to be significantly less
efficient in raising tax revenue than individual income taxes or sales taxes.
The ease with which corporations can establish offshore subsidiaries to avoid
taxes or engage in tax inversions significantly contributed to the
corporate-tax-revenue and capital-investment shortfalls seen in America in
recent years. Indeed, many European countries had already recognized the
inefficiency of corporate taxation and reduced their corporate-tax rates well
before the U.S. did so as part of the Tax Cuts and Jobs Act of 2017.
The significantly positive macroeconomic data reported
for 2018, the first year that tax-reform package went into effect, includes 7
percent growth in non-residential fixed investment, 2 percent real-wage growth
and 3 percent GDP growth. Academic research shows that this is no coincidence.
Several studies of prior corporate-tax reforms have found that lower
corporate-tax rates are associated with higher wage growth and higher rates of
capital spending on buildings, property, and equipment.
Senator Warren’s 7 percent minimum tax on corporate
income would likely reverse these recent positive economic trends and lead to
slower growth in investment and wages, in part because it would also
disincentivize the automatic expensing of capital equipment. Lower wages,
hiring, and investment means less government tax revenue.
As for the new wealth taxes Warren proposes, the example
of Europe is instructive there, too. Only three European countries (Norway,
Spain, and Switzerland) still impose annual wealth taxes today, down from
twelve in 1990. The change was fueled by a growing recognition that wealth
taxes very often lead to capital flight as wealthy individuals re-domicile to
lower-tax jurisdictions, taking their income-tax dollars with them. France’s
now-abandoned wealth tax, for example, is estimated to have contributed to the
departure of some 42,000 millionaires from the country between 2000 and 2012.
Senator Warren’s proposals rely on a fundamentally
misleading use of inequality as a political weapon. Academic inequality
research, which often focuses on pre-tax income, fails to highlight how
generous America’s existing tax-and-transfer system is by neglecting to show
the impact of the already-progressive U.S. income-tax code and non-cash public
benefits like Medicaid and Section 8 housing. Inequality data also often neglect
trends in absolute levels of income by suggesting that income is a zero-sum
game, a fixed pie. For instance, if someone in the lower income quintiles sees
a 2 percent increase in their income while someone in the top 20 percent of
incomes sees a 3 percent increase in their income, all else being equal
relative inequality metrics rise, while everyone is actually better off on an
absolute-dollar basis.
A thoughtful anti-poverty proposal might recognize that
the rise of onerous government regulations such as zoning and
occupational-licensing laws has held back the poor and contributed to the
recent rise in income inequality. Limiting the government’s intervention in
housing and labor markets could reverse growing inequality, make the poor
better off, and grow the economy. Senator Warren’s corporate-tax hikes and new
wealth taxes would, by contrast, hurt the very impoverished Americans they aim
to help — and everyone else, to boot.
No comments:
Post a Comment