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Thursday, August 31, 2017

Monopoly Rents and Corporate Taxation

Paul Krugman:

Monopoly Rents and Corporate Taxation (Wonkish): At one level it’s hard to take the Trump administration’s tax “reform” push seriously. A guy gets elected as a populist and his first two big proposals are (a) taking away health insurance from millions (b) cutting corporate taxes. Wow.
Furthermore, Trump is invincibly ignorant on taxes (and everything else) — he keeps declaring that America is the highest taxed nation in the world, which is nearly the opposite of the truth among advanced countries. And his allies in Congress aren’t ignorant, but they’re liars: Paul Ryan is the master of mystery meat, of promising to raise and save trillions in unspecified ways.
But there is an actual interesting question here, even if we shouldn’t give any credence to Republican answers. Who does, in fact, pay the corporate profit tax? Does it fall on corporations, and hence eventually on their shareholders? Or is the ultimate incidence mainly on wages, as the administration claims?

Skipping forward to the punchline:

...much corporate taxation probably doesn’t fall on returns to physical capital, but rather on monopoly rents. ... As long as the local source of profit is some kind of monopoly rent, corporate tax incidence is going to fall on shareholders, not workers. ...
And there’s a lot of reason to believe that market power is an increasingly big deal. ...
This changes the narrative, doesn’t it? Instead of focusing on rising capital mobility as a reason profits taxes might fall on workers, maybe we should focus on rising market power as a reason why profits taxes fall on capitalists.
The point for now is that when someone tells you that changes in the world have made old-style corporate taxes obsolete, be skeptical. Some changes in the world may have made profit taxation a better idea than ever.

    Posted by on Thursday, August 31, 2017 at 09:48 AM in Economics, Income Distribution, Politics, Taxes | Permalink  Comments (89)


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