Raise taxes on investments? – econlib

According to WSJThe proposed “Inflation Reduction Act” would impose higher taxes on business investment:

Start with a 15% minimum tax on corporate book income over $1 billion, which Democrats claim will increase to $313 billion by 2031. This new alternative minimum tax would slam businesses whose taxable income is less than profit on their financial statements for investment expenses, tax credits and business exemptions.

Many companies pay less than the 21% corporate tax rate because they can expense investments under the tax code up-front. So the new tax will increase the cost of business investment

The media often report this type of policy change as representing higher taxes on the “rich”. But investment is key in raising productivity, which ultimately determines the standard of living of ordinary workers. A tax on investment has the effect of taxing future consumption at a higher rate than current consumption, which reduces saving and investment and slows economic growth.

I’m trying to get up to speed on the rest of the bill. Price controls on drug purchases by Medicare can be beneficial in reducing federal spending, or detrimental in slowing the development of new drugs. More money in IRS enforcement can be beneficial in reducing tax fraud, or it can be costly by adding an increasing number of tax audits. Environmental regulations can help reduce global warming, or they can lead to unnecessary pork barrel spending. In almost every case, better options were available. Simplifying the tax code would stretch existing IRS resources even further. A carbon tax subsidy is superior to a complex mix. I understand that the original bill was an option that was politically feasible, but it’s still disappointing to see so many missed opportunities. (I doubt the next GOP administration will recover the cost of the investment.)

On the bright side, the carried interest loophole that benefits wealthy hedge fund managers has shrunk somewhat. I never understood the logic of that tax evasion. And Senator Manchin suggests there are vague promises to reduce regulatory barriers to new projects in areas such as energy and infrastructure. I’m not optimistic that this will be a game changer, but it’s certainly a very important issue. Thus it is nice to see at least a hint of some movement forward.

I don’t know enough to have a firm view about the overall bill. My instinct is generally to be skeptical of change, because almost everything in Congress makes things worse. The WSJ has the same problem An article points out that this is the 20th anniversary of Sarbanes-Oxley, which was supposed to fix accounting fraud. It seems to have done more harm than good:

A 2009 study by the Securities and Exchange Commission found that small public companies cost seven times more than large companies.

The disproportionate burden on small and medium-sized companies has fueled bipartisan criticism of Sarbanes-Oxley. As the Obama administration’s council noted: “Regulations intended to protect the public from misrepresentation by a large number of large companies have inadvertently placed a significant burden on a large number of small companies.”

There’s always a lot of optimism when Congress does something big and complicated, and then a few years later there’s disappointment with the results. I remember when the “Environmental Impact Statement” was seen as something that would help the environment. Today, they are widely used to block clean energy or housing and transportation projects that reduce urban sprawl.

Senator Manchin has received a lot of criticism from progressives for being an “obstructionist.” Ironically, he may have saved the Democrats from electoral disaster this fall. A much larger spending proposal Before the problem of inflation was fully recognized last October.

Rest assured. Progressives sometimes deride the GOP for “defunding the tax police,” given the GOP spending cuts to enforce the tax law. I’ve seen responses from conservatives that the IRS often hassles small business owners with intrusive audits. I’ve also seen progressives argue that big city police hassle young black men with stop and frisk policies. It’s worth thinking about how different people focus on different types of government abuse. Could their focus have something to do with who is likely to vote for each victim? What kind of hunting do you focus on? How does it shape your political views?

I’m a utilitarian, so I’m in favor of funding all forms of police as long as the additional resources create more benefits than costs. Unfortunately, in the real world it is difficult to know what level of spending is optimal. In my view, the best way to reduce government abuse is fewer laws (especially regarding drugs), fewer regulations, and a less complex tax code.

Leave a Reply

Your email address will not be published.