Friday, March 16, 2012

The case for corporate tax reform
In this video clip, Dr Madsen Pirie, President of the Adam Smith Institute, is attempting to prove that economics is fun. Even more challenging, he is trying to make the economics of taxation fun.

In addition to telling stories about the lengths to which people will go to avoid paying taxes, he summarizes Adam Smith's advice to the government official trying to design a good tax:

1. keep collection costs low
2. publicly announce rates and collection methods (minimize corruption)
3. make paying taxes convenient for tax payor (ex. taxes due on payday)
4. levy taxes according to ability to pay (that's where the money is)

Dr. Pirie suggests a 5th rule is needed if productive entities are mobile.

5. the tax should not kill the goose that lays the golden egg
 (ex. corporate tax rates should not be so high that corporations move abroad)

In the following WSJ opinion piece, Hassett and Hubbard discuss the nuts and bolts of various corporate tax reform proposals currently floating around Washington. They also emphasize that we can no longer consider the U.S. a closed economy, and that we must recognize that corporations are mobile. They discuss several recent studies that suggest the true burden of high corporate tax rates falls on workers, who garner lower wages and/or lose their jobs.

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