Let’s play a little guessing game. Who wrote the following?
A corporate income tax, which allows interest to be deducted prior to the determination of taxable income, induces debt-financing and is therefore undesirable. A corporate income tax also allows nonproduction expenses such as advertising, marketing, and the pleasures of the executive suites to be charged against revenues in determining the taxable income. As advertising and marketing are techniques for building market power and as ’executive style’ is a breeder of inefficiency, the corporate income tax abets market power and inefficiency just as the corporate income tax abets the use of debt-financing. Elimination of the corporate income tax should be on the agenda.
If you couldn’t tell even before reading the quotation that I was not going to quote a typical right-wing free-market ideologue, the passage about advertising and marketing being techniques for building market power should certainly have tipped you off. At any rate, the author of this quasi-reactionary screed against the corporate income tax is none other than Hyman Minsky (Stabilizing an Unstable Economy 1986 edition, p. 340) who has, posthumously, become a kind of cult figure among today’s progressives and anti-capitalists. But obviously Minsky was not a simple-minded fellow, and his work, from the little of it that I have read (mainly his biography of Keynes) is the work of a sophisticated and knowledgeable thinker who had a very practical understanding of how markets, especially financial markets, operate. That doesn’t mean that I share his general outlook on economics and finance, just that his view ought to be taken seriously, and his proposals given careful consideration.
In addition, if a left-wing cult figure like Minsky could have advocated doing away with the corporate income tax, then maybe there is some hope that a revenue-raising budget deal could be reached between Republicans and Democrats in which the corporate income tax and the employer “contribution” to social security (i.e. an employment tax) also opposed by Minsky could be traded for a Value Added Tax (with some exemptions to make its incidence somewhat progressive). To start with the trade could be revenue-neutral, but presumably a somewhat progressive VAT would generate a faster rate of growth in revenue (both from progressivity and enhanced efficiency) than the corporate income tax and employer “contribution” to social security.
On the subject of corporations, I would also like to mention a great little book (unfortunately long out of print) written by my late friend, Harvey Segal, at one time an editorial writer for the Washington Post and later chief economist for Citi Bank in the Walter Wriston era, Corporate Makeover. The automatic identification of free-market capitalism with a system of business organization dominated by corporate ownership, which sprang up almost overnight in the late nineteenth century, deserves more critical attention than free-marketers are usually willing to give it. Perhaps anti-corporate rhetoric from the left produces a compensating defensiveness on the part of free-marketers, causing them to defend corporations against all negative criticism, but even Hayek expressed considerable unease with the extent to which the corporate model separates corporate decision-making from the interests of the (nominal) owners.
HT: June Flanders
Update: As an anonymous commenter points out below, there is no reason to restrict the trade to corporate taxes for VAT, pollution taxes and certain other kinds of taxes on rent-producing activities could also be part of the mix.