Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
The Corporate Income Tax Is the Worst Tax; Repeal It and Tax Corporate Earnings under the Personal Income Tax
There are taxes which treat taxpayers fairly, are progressive in their effects, and have few bad economic effects. The corporate income tax is not one of them. The corporate income tax treats taxpayers unfairly, favors the very rich, and has bad economic effects. It is probably the worst major tax, vastly inferior to the personal income tax, sales taxes, death taxes, or any other major source of revenue.
So who bears the burden of the corporate income tax? As an artificial entity, corporations cannot bear any corporate tax burden. Only living individuals bear the burden of taxation whether it be the corporate income tax, the personal income tax, sales taxes, or excise taxes. Economists are not sure who bears the burden of the corporate income tax. The most common view is that most of the tax is borne by shareholders but some of the tax is shifted forward to consumers in the form of higher prices. The amount shifted depends on the structure of the particular industry. A monopolist has more control over the prices it charges than those in a highly competitive industry or one where much of the productive activity is conducted by proprietorships and partnerships which are not subject to the corporate income tax. (And many economists believe that the corporate income tax is borne by investors in general in the form of higher interest rates and by some special classes of employees, but we’ll ignore that in our analysis.) So shareholders in some corporations bear all or most of the burden and shareholders in others may bear a lesser share of the burden. Consumers of some products may bear much of the burden and consumers of others little of the burden. These considerations make the distribution of the burden of the corporate income tax very uncertain which is one reason that makes it desirable to eliminate it and tax corporate earnings as personal income.
As to economic effects, the corporate income tax penalizes exporters and its high rates encourage inversions (moving corporate headquarters abroad) and outsourcing of factories and jobs. Facing international competition, American exporters have little or no ability to shift the tax burden and the high rate of corporate income tax places them at a disadvantage.
US Economic Growth 2.7% over last year. China about same.
On December 23, the Bureau of Economic Analysis (BEA) of the Commerce Department issued its latest revision of U.S. economic growth during the third quarter period (July through September) of 2014. According to the BEA, the U.S. economy grew at a 5.0% annual rate during that quarter.
A more accurate estimate of the U.S. growth rate can be found by comparing each quarter with the quarter one year earlier. If the third quarter of 2014 is compared with the third quarter of 2013, the growth rate was 2.7%, not 5.0%, as shown in the graph below.
Unfortunately, the once honorable Bureau of Economic Analysis of the Census Bureau tweaked the quarterly GDP numbers in order to achieve the supposedly high growth rate. This tweaking was predicted by Tyler Durden of zerohedge.com.
When Durden analyzed the final revision for the first quarter back on June 25 (Here's the reason for the total collapse in Q1 GDP), he discovered that Obamacare payments had been removed by the BEA from the already dismal results for the first quarter. He predicted that they would be added to later quarters in order to achieve 5% growth during a quarter. Specifically, he wrote:...
The Russian economy will come roaring back
Business Week published an assessment of where Russia has been and where it is going. Its analysis of the present was pretty good, but its pessimism about Russia's future was nonsense. Russia will probably come roaring back, as countries almost always do after a currency collapse.
The ruble started falling as a result of European and American sanctions and Russian counter-sanctions. These sanctions got the Russian currency falling in exchange rate. Here´s a first hand account from a commentary on the subject by Daniel Gurevich, one of my students, who was then living in Russia:...
Mike Lee gets it -- Watch his "Animal Farm" speech about the Cromnibus bill
After castigating Congress for passing the Cromnibus, he shows he understands just what is happening in our economy today. His theme is the loss of opportunity when Washington is siding with the special interests against the American people.
He says that the loss of opportunity is not globalization only -- perhaps he understands what we have been arguing, that growing trade doesn't help when it involves huge trade deficits....
Why are oil prices falling?
When prices fall, there are two possibilities: (1) increased supply or (2) reduced demand. If oil prices are falling because of increased oil supply, that can be very good for the U.S. economy. On the other hand, if oil prices are falling due to weakening world aggregate demand, then the price collapse could be a signal that the world economy is about to collapse. Thus, it is important to determine why oil prices are falling.
One way to determine whether supply is rising or demand falling is to look at quantity sold. If quantity is rising, then supply is rising. If quantity is falling, then demand is falling. I found some statistics that might cast some light on whether world oil consumption was rising or falling on the U.S. Energy Information Administration's (EIA) website. According to their short term energy outlook, total world consumption of oil is rising from 90.48 million barrels per day in 2013 to 91.44 in 2014. Thus, unless the EIA has missed a fourth quarter collapse in oil consumption, it appears that world oil consumption is rising.
I see no signs of a fourth quarter collapse in world aggregate demand. In fact, according to the Bureau of Economic Analysis, U.S. exports of goods and services in October increased to $197.5 billion in October, $2.3 billion more than September exports. If world aggregate demand were collapsing, then U.S. exports would likely be falling. So, we can rule out collapsing fourth quarter world demand for oil.
OIL-PRICE.NET has a good summary (Oil Price Drops on Oversupply) of geo-political reasons why oil price supply is increasing at the moment. Here are some of the ones that they list:...
Journal of Economic Literature:
Atlantic Economic Journal: