Wednesday, May 18, 2005

A tax even the STrib couldn't love 

Matt writes me to look at Anti-STrib's post on the STrib's editorial that business taxes shouldn't be raised. Yes, you read that right. Tracy wonders what the deal is?
I have 2 guesses.
1. They are tired of overpaying their corporate taxes.
2. They figured out that people pay corporate taxes when they buy products. It�s easier to raise the price by $0.05 than it is to cut everyone�s pay by $1.00 an hour.
Well, I don't think the STrib's own situation has much to do with it, or else they might want to do something about the cost of delivering newspapers, which is also going up. As to the second explanation, it is questionable whether corporate taxes can be shifted forward to consumers or backwards to labor (in lower wages.)

No, and the weirdest part of this editorial is that that argument is the Reagan line, that corporations are just people. Former Bush Council of Economic Advisors chair Greg Mankiw made this comment in his text, and Brad Delong doesn't like it at all. It's not clear how much shifts to employees, but it's unlikely more than half. And a fair amount of it falls on owners of capital. (This article summarizes all the research.) The assumption that prices can be put up for consumers to pay for the tax, however, is not usually borne out in the literature.

There is something unfortunate going on in that Republicans seem to feel compelled to chase Minnesota businesses that have moved production to cheaper places. But the DFL has for a couple years now gone beyond the paper shell operations and tried to tax legitimate offshore income like royalties. Even if the horrid income surtax was removed, the Senate tax bill is bad enough that it deserves richly the Pawlenty no-tax veto pledge.