I am probably more familiar with the Laffer curve than 99% of Americans but OK, I’ll play along. Yes at 0% and 100%, theoretically, no tax revenue is collected.
Its not even half. The laffer effect doesn’t kick in until well past the 50% point.
OK so what? The the optimum point might be 70% which would mean that bringing up the laffer curve is pojintless because noone is suggesting a 70% tax rate.
First of all, that has NOTHING to do with the Laffer Curve, I think you are confusing different concepts.
Second of all, what you are proposing is that we engage in a tax rate race to the bottom. There are reasons why we might want to get rid of the corporate income tax and replace it with higher individual taxes (and no cutting taxes will NOT pay for themselves).
My guess is that he is talking about Asia or one of the Eastern European countries.
I disagree. I think it actually has quite a bit to do with the Laffer curve.
The Laffer curve argues that when tax rates get too high, the incentives to engage in wealth-creating behavior diminish. Therefore the desire to produce (and report) income diminishes, leading to lower tax revenues.
The concepts are basically the same. When you have alternatives to [work/invest + high tax rate] that are more attractive, you will pursue those alternatives. One of those alternatives might be to do nothing. Another might be to invest in the 15% region vs the 39% region, since it is more attractive. Therefore wealth-generating activity, income, and corresponding tax revenues will go up in the 15% region, relative to what they were before. They will go down in the 39% region, relative to what they could have been.
I am absolutely advocating a race to the bottom. But you’ve got it upside-down. It’s actually the top.
We’ve had this conversation about transfer pricing before and it is not nearly so simple as you portray, yes there is some income shifting at teh margins but not really in the meaty middle.
A race to the bottom never makes particularly good tax policy for the alrgest economy in the world. Places like Bermuda didn’t gain very many jobs, those jobs stayed here, the PO box moved to Bermuda, the reason a lot of these fancy derivatives were set up in tax shelter jurisdictions is because we have odd sourcing rules regarding swap income.
Reducing the corporate tax rate would have to be offset by an increase in some other form of tax unless you don’t think our deficit is big enough as it is.
Making SS voluntary is retarded, please see any thread on social security to see why.
You can eliminate the distortion by not taxing foreign income OR by taxing that income immediately.
We have indeed, but I am not going to take the opinion of an unknown Internet poster over that of our CPA, who reviewed and approved our policies and pricing.
Anyway, transfer pricing is only part of it. There is also how corporations are structured as to where plants/offices are built and people employed.
I agree that Bermuda would not gain much employment - there is probably one guy in an office acting as the front for several corporations. That is why I only stressed the London example with respect to employment.
The Bermuda example is more a question of whether the US would get more taxes by taxing a larger amount at a smaller rate. If the corporate rate were lowered to zero as per the OP, the answer would clearly be no. Then the question becomes whether the money being in the US brings benefit to the US compared to the money being overseas.
Fine, I disagree but its not relevant.
When we talk about the laffer curve we are talking about raising revenue by cutting taxes and lowering revenue by raisig taxes. It is not an effect we would see by lowering rates from 39% to 15% (and that ignores the fact that the laffer curve doesn’t really apply to your scenario).
You can argue that eliminating the corporate income tax is a good thing but when you are lowing your tax rate to give yourself a competitive advantage over othyer taxing jurisdictions, it is effectively a race to the bottom. There are smart knowledgable tax folks that think that it would be a good idea but I don’t think I have heard people use the laffer curve to describe why it would be a good idea.
I think our deficit is grotesque.
I think you would actually generate a fair amount of taxes from increased employment due to reductions in burdens on employers.
Making SS voluntary is not retarded. It will cause pain in the short term, since SS is a Ponzi scheme. If it wasn’t a Ponzi scheme, it would be an absolutely zero cost way to decrease the burden on employers. But it’s not zero cost, since benefits are being paid to recipients without any corresponding assets to back them up.
Let’s take it to an extreme. Suppose all, reasonably developed economies where US multinationals have a presence have a local tax rate of 15%.
Suppose the US raises it’s corporate tax rate to 70%.
What do you think would happen next?
I think your CPA might be giving you bad advice if he thinks that you can exercise a whole lot of discretion on how to allocate income. Either that or he is factoring the audit rate into his calcuations.
We are still the largest economy in the world, it is hard to imagine increasing our share of the world economy proportionally in excess of whatever tax breaks would be required.
Not even that. There are law firms that will maintain a file for you down there and act as agents for service of process. You probably don’t have much more than a phone number (which gets forwarded to that lawyer down in the Cayman Islands) and a P.O. box (which is in the lobby or mail room of that law firm in the Cayman Islands).
If we were a smaller economy, like Ireland or Slovenia then sure I can see how we could more than double the corporate activity in our country by halving the corporate tax rate but as the largest economy in the world, it is not nearly as clear that we can increase overall tax receipts by luring corporate income to the United States with lower tax rates.
I finally decided to do some research. There are plenty of people who think transfer pricing offers significant tax-saving opportunity:
If $60bn/year is “at the margins”, them’s pretty darn big margins.
[quote=“IdahoMauleMan, post:51, topic:543887”]
I think our deficit is grotesque.
[quote]
So I would assume you have a targetted spedning cut or tax increase to balance every tax cut you propose. Right?
It is very doubtful. It is also not how the Laffer Curve operates.
First of all SS is not a Ponzi scheme. The seminal characteristic of Ponzi schemes, the things that gives them a bad naeme (which people have been trying to smear SS with) is the fraud. Such fraud does not exist here, it is a transfer payment. If you can describe how you would manage the transition from what we have now to a voluntary SS system, I’m all ears (get your politican buddies to run with this idea).
You would have a race to the bottom among those countries with 15% tax rates? Whats your point? I have already said that there is an argument to be made for lowering or even eliminating the corporate tax, I’m just pointing out that the Laffer Curve is inapplicable to corporate taxes because now you are comparing our tax rate to other tax rates and not comparing work to leisure. If our tax rate was 15% and the rest of the world was at 1% you would have the same result, wouldn’t you?
And in any event its not the laffer curve effect and it should also be noted taht the laffer curve doesn’t make a lick of difference until tax rates are far in excess of 50%.
I agree. But it would have been far less grotesque if believers in the Laffer Curve hadn’t piled up deficits in times of prosperity. It would be nice if you would answer the questions about where on the curve we start losing revenue by raising taxes.
The Laffer Curve is a trivial example of the mean value theorem. But for all we know, the inflection point might be at a 99.5% tax rate. If we don’t know where it is, we can hardly make policy. Now, the Clinton tax increase shows the inflection point, where ever it is, is above where we are today.
If employers have enough employees to produce the output needed for the reduced consumption we see today, why would they hire more? We also see them hiring temps because of uncertainty about the future. Do you think the increase in the deficit from a cut in the tax rate is going to increase or decrease uncertainty?
We just finished a thread which demonstrated that the claim that SS is a Ponzi Scheme is alarmist bullshit, and a Big Lie.
How nice of Lord Hanson to be concerned with Asian economic policies. I’d have thought his “we” referred to the UK.
Oh right.
I must have missed the ‘demonstrated’ part of that thread.
It was right where a Ponzi scheme was defined as among other things, fraudulent. You can’t miss it. Glad to be of help.