Will reducing the corporate tax rate actually lead to increased wages?

Democrats and others are claiming that the proposed Republican tax package’s reduction in the corporate tax rate is a sham and a ruse to benefit the one percent. It would actually only lead to enriching corporations and have zero effect on wages. A brief review of what real economists say will be refreshing.

Start here with David Henderson’s short post on the subject.

Let me quote the most germane part of Professor Henderson’s post:

So let me explain in simpler words by noting that the key assumption in the above is the assumption of a perfectly elastic long-run supply of capital. Why would it be perfectly elastic? Because capital is quite mobile across countries, so when one country’s government cuts its tax rate on capital, that draws in capital from around the world.

Why does this matter? The greater the stock of capital, the higher is the ratio of capital to labor, and, therefore, the higher is the marginal product of labor, and, finally, the higher is the real wage.

Thus increasing the marginal product of labor, i.e. the value of labor, entails rising wages.

If you follow the link to Professor Mankiw’s blog post you will see that he shows there is a multiplier bonus effect: every dollar of tax cut to capital (on a static basis) raises wages by $1.50.

Bingo. QED. Try explaining this to denialist Democrats with a vested interest in naïve counterfeit economics.    


Addendum: it might be helpful to say that there is a tight relationship between the marginal product of labor and wages (total compensation.) Greg Mankiw shows that as the former goes up, so does the latter. See  here  especially point #4 for a fuller, yet still simple explanation.



Missouri Voter Guide 2016

Here, by popular demand, are my thoughts about the upcoming election.

For elective offices, I recommend voting a straight Republican ticket. With a Republican Governor and General Assembly, Missouri can finally remove the millstone around the state’s economic neck without needing veto overrides. The biggest economic issues are:

  • forced union membership
  • prevailing wage
  • relief from excessive taxatio and regulation

Removing the first wo and reforming the third would promote general economic growth and dramatically reduce the cost of construction by cities and school districts. This would help the union workers so adamantly opposed to these reforms. The bloat of tax credits for development and historic preservation, largely confined to St Louis and Kansas City, Democrat strongholds, have choked the state’s revenue stream for too long. There is hope they could be dramatically scaled back. Another critical issue is religious liberty. Josh Hawley as Attorney General would be of immense help here.

Some believe that the Republican General Assembly is too conservative, to the point that electing liberal Democrats might restore some mythical middle-of-the-road balance. But there is no compromise possible on right-to-work or religious liberty. If there were to be one, it would prove the maxim that to do nothing is often better than a bad compromise.

I recommend turning down every initiative and proposed constitutional amendment with the exception of the Constitutional amendment no. 6, dealing with verifying a voter’s identity, citizenship, and residence. United for Missouri has a fuller discussion of the constitutional amendments here. My comments on each amendment are below.

Constitutional amendment no.1.

“Shall Missouri continue for 10 years the one-tenth on one percent sales/use tax that is used for soil and water conservation and for state parks and historic sites…”

The decision here is not whether we approve of soil conservation and parks, but rather if a constitutional amendment is the proper way to fund a state department. The answer should be obvious. Four major comments: one, the Constitution is no place for individual taxes. It is for the general structure of state government. It should be up to the legislature to fund all state agencies. Two, this is a dedicated tax, which may not be used for any other purpose. Dedicated taxes are always a mistake, no matter the desirability of the benefits. The needs of government agencies are not the same from year to year. The invariability of the tax rate does not allow for adjustment and it takes away from the remaining pot of money available to all the other agencies. It exempts the conservation and parks departments from having to justify their budgets every year in competition with the other departments. Unearned entitlements are as bad an idea for bureaucrats as they are for people. Three, it sets a precedent for according this kind of preferential treatment to other agencies via new constitutional amendments. Four, there are rumblings that some funds from the tax have been improperly used. Regular funding would bring better accountability.

Let’s help the parks by funding them the same way as other departments by voting NO.

Constitutional amendment no. 2.

Shall the Missouri Constitution be amended to establish limits on campaign contributions by individuals or entities to political parties, political committees, or committees to elect candidate for state or judicial office…

This amendment follows the liberal howling about the Citizen United Supreme Court decision that individual together have the same free-speech rights as they do individually. There is no evidence that spending more money swings elections. There is evidence that campaign finance laws limit the amounts that may be given to political parties, weakening them and strengthening outside groups (think Soros.) This is a dangerous amendment & should be voted down, never to return.

Constitutional amendment no. 3

Shall the Missouri constitution be amended to increase taxes on cigarettes…and deposit funds generated by these taxes and fees into a newly established Early Childhood Health and Education Trust Fund?

The same comments about Amendment 1 apply here. Dedicated taxes are mistakes. Constitutions should not be used for policy purposes, even if they are disguised as For The Children. Some recent research suggests that early childhood education is either not effective or somewhat harmful. In any event the state should stay out of education. Toddlers should be with their mothers, not in some government provided nursery.

The television advertising in favor of this amendment stresses that Missouri has the lowest cigarette tax in the nation as if that were a reason to raise it. Many states have an income tax rate of zero; should they raise it? It also implies that stogie-chomping politicos in the capitol are against the tax. No explanation why this should be believed. And of course we all know that early childhood education is desperately needed. J

There are some curious provisions hidden in the fine print of this amendment. One is the prohibition on use of funds on abortion and human cloning, as well as distribution of funds to any facility providing abortion services. Is this to prohibit funding abortion for five-year olds? Then there is a prohibition of funding “tobacco related research of any kind.” Following which we notice a provision for a tax increase labelled an “equity assessment fee.” This would raise taxes substantially on the competitors of Big Tobacco, who did not participate in the huge 1998 nationwide tobacco settlement that enriched trial lawyers by hundreds of millions.

This self-serving proposal originates with the big tobacco companies and is beyond shameful. The only good thing about it is that it provides evidence that the mechanism for proposing constitutional amendments needs real tightening up.

Constitutional amendment no. 4

Shall the Missouri Constitution be amended to prohibit a new state or local sales/use tax or other similar tax on any service or transaction that was not subject to a sales/use tax or similar tax as on January 1, 2015?

This is a good one, deceptively labelled as the Taxpayer Protection Amendment. The claim is that if sales taxes were to be extended to services, taxpayers would pay more. Broadening the tax base is usually a very good idea, as it promotes equal treatment and would permit lowering the sales tax rate. The Canadian sales tax is called GST, for Goods and Services Tax. It is a fair tax. Why should services be exempt? What does January 1, 2015 have to do with good tax policy? United for Missouri claims that real estate agents are the primary initiators of this proposal. They are fearful that broadening the sales tax base would permit lowering the very high income tax rate in Missouri, which would then lower the value of the home mortgage deduction and thus of the value of houses. A very good AP story here states the organizers of the amendment are supported by a coalition of accountants, attorneys, banks, funeral homes, newspapers, and broadcast media. The hubris of these people is astonishing. If there ever was a self-serving proposal by ‘special interests, this is it.

Constitutional amendment no. 6

Shall the Constitution of Missouri be amended to state that voters may be required by law, which may be subject to exception, to verify one’s identity, citizenship, and residence by presenting identification that may include valid government-issued photo identification?

Opponents claim that voter impersonation is a non-problem, though a man elected by voter fraud currently serves in the Missouri General Assembly. This amendment permits the state to prevent impersonating a dead person or someone who has moved to another state but has not been removed from the voter rolls. It also prevents people voting in districts not their own. Finally it would prevent non-citizens from voting, a well documented and growing problem exacerbated by bad court decisions.

This amendment was made necessary by opposition from Democrats and a bad Missouri Supreme Court ruling invalidating legislation. The legislature then turned to a constitutional amendment to get this reform past judicial opposition. An obvious YES vote.

State of Missouri Statutory Measure Proposition A

Shall Missouri law be amended to increase taxes on cigarettes…use funds generated by these taxes exclusively to fund transportation infrastructure projects…repeal these taxes if a measure to increase any tax or fee on cigarettes or other tobacco products is certified to appear on any local or statewide ballot?

There are two tobacco taxation measures on the ballot. This one, Proposition A, is dueling with Amendment 3. Both claim to use the revenue collected for angelic purposes. Proposition A would use the increased tax revenues to fund a quite real funding gap for Missouri’s transportation needs. Again, dedicated taxes are bad policy. The legislature should come up with a way to address this need. This proposition has an interesting twist. The tax will “automatically and permanently be repealed” the moment “any tax or fee increase on some of all cigarettes or other tobacco products is officially certified to be placed on any local or statewide ballot.” In other words, the legislation introduces a poison pill to prevent any other tax on tobacco. Outrageous. The Missouri Petroleum Marketers and Convenience Store Association, who promoted this attempt to circumvent Amendment 3, should be tarred and feathered.

 State of Missouri Official Judicial Ballot Missouri Supreme Court Judge

Shall Judge Richard B. Teitelman of the Missouri Supreme Court be retained in office?

Teitelman is one of the most leftwing activist justices Missouri has ever seen. His tenure with the notoriously liberal Legal Services of Eastern Missouri before he became a judge reveals his mindset. As a judge his opposition to tort reform and the death penalty along with his approval of homosexual marriage earned him opposition in his 2004 retention election. The Missouri Bar’s trial lawyers supported him at 80% then. The Missouri Supreme Court’s perverse decision striking down voter ID legislation made Amendment 6 necessary. This is an easy call: NO.   Troglo


Political quickie: Repeal the Death Tax

The U.S. House of Representatives voted last week to repeal the Federal Death Tax, legally called the Estate Tax. Even if repeal passes in the Republican-controlled Senate, the President will veto it. Nevertheless the left has put itself into a rage. Their arguments against repeal are:

  • Repeal would reward the wealthy and then only a very few
  • It would punish the poor
  • It would perpetuate a new aristocracy
  • It would cost the Treasure and contribute to the deficit
  • It would exacerbate income inequality

These are weak arguments. They reveal that liberals are envious and hateful, thus their tenacious support of this punitive, unusual, and very stiff tax. They are little concerned with fairness, equity, and the principle of even-handed justice when it comes to their enemies, the evil rich. To our mind, the fewer the people who must pay the estate tax, the more unfair it is. Even if it forces only a single family to sell a business or farm to raise the cash needed to pay the tax, it is discriminatory, punitive, and anti-American. The death of a family member is horrible; the insertion of the greedy hand of the tax man into this event is as unnecessary as it is unseemly.

A few more points. The estate tax is now at the confiscatory level of 40% with an exemption level of $5.43 million. Pace the left, it affects far more than the people who have to pay it, since the desire to avoid or minimize it costs many years of planning with expensive attorneys. How many people know when they are going to die and how much their business or farm will be valued at that time? These planning and other costs, which otherwise would have gone into growing a business, amount to a large percentage of the tax revenues gained. Thus this is an inefficient tax as well as an unfair one. While accumulating the estate paid tax upon tax; a new tax payable on death is unfair double taxation. The motivation for passing wealth on to children is a family value, as well as a great motivation for economic growth – resulting in increased tax revenues. This tax is anti-family. Inherited wealth and life insurance payments are generally not considered income at the Federal level, with the exception of tax-deferred retirement accounts. But if death is not a taxable event for inheritance, why should it be a taxable event for estates? Sweden and Norway, those bastions of progressivism, recently repealed their estate taxes. By liberal logic, should we not follow suit?

The only real question remaining is not why should the estate tax be repealed, but why the Republican Senate will not also vote to repeal? Perhaps for the same reason that ten Republican Senators voted today to confirm Loretta Lynch for Attorney General despite her support of Obama’s unconstitutional executive actions.   Troglo


Political Quickie: Who pays income tax?

The Tax Foundation has recently released its summary of the IRS’s data on the 2012 tax year. Click here for the report.

There are two big takeaways:

97.2% The percentage of taxes paid by the top 50% of individual taxpayers
2.8% The percentage of taxes paid by bottom 50%

This tells all we need to know about the progressivity of the federal income tax system. A further tidbit useful in gentle discussions with progressives is this:

38.1% The percentage of all taxes paid by the top 1%

Given that above a certain point tax rate increases produce declining revenues, if government continues to grow, the bottom 50% will start having to pay more. At that point the free ride ends. Shouldn’t we all be pressing for a reduction in the size and scope of government?   Troglo


We’ll miss you, Doctor (and Senator) Coburn

Over the years we have figured among the biggest fans of Senator Tom Coburn, an Oklahoma obstetrician who never ‘evolved’ and turned Washington. He is well known for his honesty and struggle to reform the Washington Way. We want to express our gratitude for his service and the honest, open, sincere, non-lawyerlike way in which he carried out his Senatorial duties. This great patriot is the author of several books:

The Democrats on the Senate Ethics Committee did him the great honor of threatening censure for continuing to practice medicine while a Senator. (We are not making this up.) He kept his promise to retire after two terms. In a parting shot across the bows of the Big Government fat cats, he has now issued a 320-page report, The Tax Decoder, specifying in detail over $900 billions in outrageous giveaways scattered throughout the tax code. This brief 59 second YouTube video is a great introduction to the report. We recommend a quick glance at the highlights .The press release with the link to the entire report is here.   Troglo


Retire Hank Waters: the fairgrounds tax editorial

Hank Waters, an elderly scion of the family owning the Columbia, Missouri Daily Tribune, is solely responsible for its editorials. Thursday’s editorial was Fairground Tax: the nature of the opposition.

The title suggests that Mr. Waters will discuss the arguments behind the opposition to the tax and give reasons why he supports it. We expected a balanced, fair treatment of the arguments pro and con. We did not get it. Most of the reasons behind the opposition are ignored and, when brought forward, misstated. His support of the tax often boils down to assertions empty of substantiation. The straw-man opposition is painted as stupid, short-sighted, and acting against its own wishes and interests. This reminds us of the book, What’s the matter with Kansas?, which with typical liberal condescension details how stupid Kansans are to vote Republican against their obvious self interest. Mr. Waters gets so many things wrong that we cannot resist the temptation to respond point by point. But before we get into the sins of commission, we want to highlight those of omission. There are many serious and disturbing issues surrounding this poorly drafted proposal no serious commentator can legitimately ignore. By doing so Mr. Waters’s editorials betray an arrogant disrespect for his audience. He has far too long been a member of the good-ole-boys clique that believes it alone has the right to run local government.

If Mr. Waters refuses to retire, he should at least bring in editorials from guest editors. Continue reading

Columbia, Missouri, taxes, and its police force

We just viewed a television interview with Columbia Mayor R. McDavid. The interview was in regard to his plan ask voters to increase property taxes to remedy the understaffing of the police department.

Dr. McDavid made several points that perked up our ears:

  • We should ignore the blogosphere and talk radio. (Now there’s a challenge.)
  • The Columbia Police Department is understaffed by at least 30%.
  • The voters will get a chance to determine the size of the Columbia Police Department.

We do not wish to get into the policy weeds concerning the differences between the Columbia PD chief and the Boone County sheriff, or the question of which taxes should or should not be raised, nor the issues currently swirling about violent crime in Columbia (just perception per the mayor?) There are several broader points to be made, points we believe should contribute to a sound evaluation (not ‘perception’) of the situation.

When a politician says he is ignoring talk radio and its many callers, a defensive posture, he is likely aliening people who might be persuaded to his point of view. Not a good tactic.

We accept that the Columbia PD is understaffed. Our question is: Why? The city recently changed its method of budgeting. It asked for and last fiscal year got a surplus from the various departments. Having no plan to handle the surplus – certainly not returning it to the taxpayers – the city returned it to the departments. Now the city is asking for a tax increase to handle a policing situation it should have known about years ago. It is quite common for politicians to accede to the demands of special interests, or favored causes like ‘green’ energy to the detriment of essential services. It is also common for politicians to protect non-essential services and ask for tax increases to support the essential ones. Recently voters approved a permanent sales tax increase to provide a one-time upgrade to the 911 center, the Public Safety Joint Communications office. Clearly the understaffing of the PD did not occur at once, but over years. In our opinion and considering the importance of public safety, we would like to see the people responsible identified and then recalled or fired.

Yes, the voters will get to determine the size of the Columbia PD. Of course in phrasing the issue this way, the Mayor is deflecting responsibility from the city to the voters. But when did the voters ever get the chance to determine the size of any part of the city government? Or of the city government as a whole? Or to determine which services are not essential, so part of their budget could be transferred to the PD?

The manipulation of voters by politicians and bureaucrats, while common, is still scandalous. What to do? Education of the electorate is surely an urgent need. In the meantime a NO vote on the property tax increase is called for.