Sunday, May 6, 2012

Lee Sheppard to OWS: Occupy Econ Departments

Sheppard says that way the OWS protestors "could confront another group of elites who are responsible for the financial meltdown and have yet to apologize: the nation’s academic economists."    Says Sheppard:
Free market economic “literature” ...gave succor and intellectual respectability to the decades of deregulation and tax cuts that have bankrupted the country. Congress is compromised, to be sure, but lobbyists and members need economic studies as cover for what they are doing.
Further:
No, we don’t have to lower the U.S. corporate income tax rate just because the Europeans did, or because tax havens are allowed to leech off market countries without fear of being booted out of the bank clearing system.
And she echoes the "backing and platforms" theme so eloquently described by Ann Pettifor.  Sheppard says:

Economists won’t reveal which right-wing foundations fund their dubious tax and public policy research. The American Economic Association voted not to require economists to disclose the sources of their funding.
Surprised to see this view in Forbes?  Controversy = good theater = ad revenues.   Right wing Forbes blogger and self-described "pompous blowhard" Tim Worstall chimes in with a comment to express his fear that Sheppard might be confused because she doesn't understand the the standard model of corporate tax incidence.  Whenever someone brings up corporate tax incidence, I am reminded that economist Alan Auerbach, who maybe studies this issue more than anybody else, says the main thing we know for sure is we don't know very much at all about who actually bears the corporate tax.  He takes issue with the standard model as an analytical tool:
"One-dimensional incidence analysis -- distributing the corporate tax burden over a representative cross-section of the population -- can be relatively uninformative about who bears the corporate tax burden, because it misses the element timing. For example, for a tax that is shifted over time from shareholders to all owners of capital... the part not shifted will fall entirely on initial shareholders, while the part that is shifted will fall on future capital owners.  Collapsing the burdens on shareholders and capital owners into a single cross section completely misses this important distinction.
I don't pretend to be an expert on incidence but we often see it used as a tool to rhetorically eliminate the corporation as an appropriate subject for taxation, so these kinds of assumptions seem key to the analysis.

2 comments:

  1. "I don't pretend to be an expert on incidence but we often see it used as a tool to rhetorically eliminate the corporation as an appropriate subject for taxation, so these kinds of assumptions seem key to the analysis."

    That's quite amusing actually. For in the Auerbach paper you link to he says this:

    "The most evident difficulty in assigning the corporate tax burden is that, unlike most
    taxes, there is no guidance given by statutory incidence. While we may start with a working
    assumption that individual income taxes or sales taxes are borne by the people who are legally
    liable for them, for example, there is no comparable assumption for the corporation income tax, given the cardinal rule of incidence analysis that only individuals can bear the burden of taxation
    and that all tax burdens should be traced back to individuals."

    That is, the one thing we absolutely do know about taxing corporations is that we are not in fact taxing corporations.

    They may still be convenient places to tax, this is true, but we do know that we are not in fact taxing the corporation itself.

    We even know that it is impossible to actually tax the corporation. Which is, I hope you'll agree, a reasonable indication that we shouldn't try to do so?

    ReplyDelete
  2. Sure enough, we should tax corporations like partnerships--on a flow through basis to their shareholders. It's really the only sensible way, as you point out, to deal with the fact that corporations don't ultimately bear the taxes they pay.

    ReplyDelete