Paul Krugman on why the Trump corporate tax cut did not 'work'

[Kingpoleon]

He is skeptical that cutting taxes in general increases incentives. But Krugman, rather famously, tends to minimize the differences in corporate taxes, consumption taxes, payroll taxes, income taxes, estate taxes, and capital gains taxes. This is broadly inaccurate because it ignores the different functions of different taxes.

Of course, in my view Krugman starts from the wrong place entirely. Mankiw and Acemoglu are generally more mainstream and are not talking heads like Krugman and Summers tend to be.

[Kingpoleon]

I think the key point here is that long term business investment is more sensitive to tax rates.  This suggests that, over time, new corporate investment might gravitate to lower cost jurisdictions, even as the current investments are likely to remain.

So, it is far too early to judge whether the Trump corporate tax cuts will have any positive impact.

However, I also think a key point is that just as corporations compete with different strategies (some are lowest cost product/service, low quality, others compete with higher cost product services and higher quality, some compete with a great deal of spending on research and development while other companies remain profitable by penny pinching ever dollar, for instance) so can governments and nations.

So, a government/nation that has a relatively high tax structure (the mix of taxes can also be important, but that is another matter) if the money is spent efficiently.  Every truck driver knows that being stuck in traffic costs money as does the business that is waiting for the truck to arrive.

Overall, there are about 20 screens that a business looks at when deciding to invest and tax rates are just one of them.

The right wing ethos that Greg Mankiw cheerlead and help prolong with his first year micro and macro economics textbooks overstated the importance of tax rates.  It's possible that Krugman understates them.

You remind me of another academic’s online entourage. James Tour is a talented, talented chemist who has spent hours “debunking” abiogenesis, and his followers fail to understand that synthetic chemistry and origins of life biochemistry are two wholly different fields. He is accomplished in one of the fields, but not the other.

To THEN suggest that Mankiw, who might be the world’s most prominent economist on fiscal policy, has made a mistake but maybe (both sideism), just maybe Krugman made the opposite mistake is hysterical. Mankiw’s thesis about the impact of tax rates and differentiating between different types of taxes is far more serious macroeconomics than anything Krugman writes on the subject. That would be like comparing Daron Acemoglu to Larry Summers - it’s nonsense.

[Kingpoleon]

I mean, it seems pretty obvious that cutting corporate taxes in a good economy is a dumb idea. Where are they going to put those savings, other than juicing up their share values on Wall Street?

Revenue from corporate taxes do not primarily come from reduction in corporate profit, but fall predominantly on consumers & workers. Corporate taxes are also horribly inefficient.