Janet Yellen defended the proposed increase in corporate taxes. Her main rationale seems to be that Uncle Sam needs the money for infrastructure. She claims that taxes are at an all-time low and so she wants to raise the corporate income tax.
I wrote
about the incidence of the corporate income tax last week and while some of you
weren’t convinced by my lucid argument, my main point was simply that it won’t
just be rich folks who are impacted by the higher tax rates on corporations.
But that was
last week, and this week is, well – this week. The point this week is that the
problem is not that taxes are low. It’s like your kid
arguing for a higher allowance because she gets less than all her friends. How
can she survive if she can’t go to Paris with her friends next week?
Loving the
data points so much, I put together a little table* using data from the
Congressional Budget Office. I chose five years for the data – every five years from 2000 to 2020.
The Rev
column shows federal tax revenues in each of those years as a percent of Gross Domestic
Product. The Exp column is federal government spending as a percent of GDP.
The item that stands out the most is that Yellen needs tax increases, but not because
taxes are so low today. Sure, the 16.3% in 2020 looks low – though it is a good
bit higher than the 14.6% in 2010. Obviously, recessions are not kind to taxes.
The average tax rate across the five years is 17.1%.
Notice the
expenditures column. In 2020, the eye-popper is the federal government spending
that is 31.2% of GDP. Now that’s a whopper of a year for spending. Could all that really be for infrastructure? I don’t think so. Before 2020, the average
spending of those prior four years is 20.2% of real GDP.
Point? If
you want to tax corporations more, then go ahead and do it and live with the consequences.
But to say that you are doing that because taxes are too low is ridiculous.
Taxes are insufficient because you are spending huge amounts of money – and not
much of it is really for infrastructure.
Janet Yellen – you need to go back and read the story of Pinocchio.
Year Rev Exp
2000 20.0 17.7
2005 16.8 19.3
(recession 2001)
2010 14.6 23.3
(recession 2008/09)
2015 17.9 20.4
2020 16.3 31.2
(recession 2020)
No question in my mind that spending is the problem. But I seem to be in the minority at least as it pertains to Congress as they seem willing to approve increasing levels of spending without any concern for offsetting revenue via taxes. I suppose if one believes that ever increasing spending levels are OK, then it is not a non-sequitur that taxes are too low. Unless, of course, you just don't see any connection between the two.Maybe that's our problem. As we have opined in the past, wholesale increases in spending, without regard to revenues, seems to be popular and Ok--until it is not OK. At that time, the experts will explain to us dummies why it was obviously not OK and should have been understood by all!
ReplyDeleteGood points Ed. Looks like we agree on this one! The more they can convince us that the present situation is an emergency, the more they can load up permanent changes in government. Never waste a crisis!
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