Policy Shop: Corporate Income Tax Arguments Almost Always Miss the Point

New post at policy shop. Excerpt:

It is this kind of complexity that renders most siloed discussions of the value of the corporate income tax somewhat ridiculous. Talking about the value of any particular tax in a vacuum almost always generates this kind of borderline futile discussion. What ultimately matters is not the merit of each specific tax, but the way in which each tax fits into the overall tax system, and most importantly how that tax system fits into an overall system of economic distribution. There are conceivable societies where there is no corporate income tax, but the overall distribution of income and wealth is just. Likewise, there are conceivable societies where there is a substantial corporate income tax, but the overall distribution is unjust.

Read the rest at policy shop

United States income taxes still relatively low

The OECD released some information about income taxes for 2011. It’s hard to know how interesting the information is because all the spreadsheet links in the release are broken. Nonetheless, the release provides this chart, which compares income taxes in the United States to income taxes in the rest of the 34-country OECD:

These numbers represent the percentage of total labor costs being paid to taxes. So that includes direct income taxes, and employee and employer payroll taxes for social insurance programs. That figure is then reduced by the amount of transfers — things like the child tax credit for instance — that individuals receive. As is apparent, the United States still has relatively low labor taxes. Depending on the household type, households in the Unites States pay anywhere from 4.5-8 percent less in labor taxes than the OECD average. Contrary to what you might hear in the popular rhetoric, the US is still a very low tax country.

The poor pay 16x higher excise tax rate than the rich

The Center for Budget and Policy Priorities put out a nice series of charts today detailing the distributional impact of various regressive taxes in the United States. One of the findings is that the lowest quintile of households pay 1.6% of their income in excise taxes each year while the top 1% pay only 0.1% of their income in excise taxes. If I were as dishonest as conservative analysts are, I would blast outrage every day about how the poor pay 16x higher tax rates than the rich. That would be the equivalent of what conservatives do when they complain about income tax distribution without mentioning any other taxes.

The more honest takeaway from all of this, as I have said quite often, is that some taxes are regressive and others are progressive. Focusing on any one tax without putting it in the context of the entire tax scheme is dishonest. Even flat tax advocates must concede that we need the income tax to be progressive if for no other reason than to offset the regressivity of excise taxes, payroll taxes, state taxes, and local taxes. Just how regressive are these taxes that conservative analysts conveniently ignore? The CBPP provides the following charts: