We already know that tax cutters will make whatever argument is expedient. As for Obama, the bulk of the cost is in the “middle-class” part of the tax cut renewal — that was Obama policy from the get-go and so its implementation is not capitulation. Extending the estate tax, even with relatively favorable parameters, was not Republican policy and so getting different parameters cannot be said to be a capitulation. Extending UI is a sound economic decision. While a $60 billion giveaway to the rich may be a high price it has to be weighed against the hardship the opposition was willing to inflict on the long-term unemployed (and other people who’d become unemployed as a result).

I haven’t seen any other MCAD trust data. My understanding is that the spreadsheet I reposted was obtained from the city and was a matter of public record (presumably via the city’s guarantee as part of the refinancing).

Great insight and comments!

Dave B.

To start with, limited liability means that the state may have to pick up the pieces if a corporate venture causes external problems, beyond what the corporation can cover in liquidation. It also creates an agency problem, in that the corporation can take on much greater risk than any sane individual would. This protects the owners and management, but imposes costs on the rest of society. Since the government is effectively assuming the excess risk, it should obtain some benefit for the privilege.

Also, that “passing on the cost of higher taxes” argument is bogus. If the corporation could pass on the cost of higher taxes, it would be irrational not to be grabbing that surplus today as profit. Not every corporation is run by a charitable angel. The real problem is that the cost of higher taxes could not be passed on to consumers, at least not all of it, and that would mean less executive compensation. We’ve actually run this experiment. Compare corporate taxes and executive compensation pre-1980 and post-1980.

Personally, I have nothing against collectivism. There are inherently risky operations that we all benefit from, so it makes sense to provide a collectivist structure to manage the risk. On the other hand, we shouldn’t buy so completely into the collectivist myths of capitalism that we lose control of the artificial entities we have created and turn their potential against ourselves.

User fees have their place, but they’re not a cure-all. In practice, you don’t so much pile on distortions as trade them — e.g. charging marginal cost (which may be zero) for a public good and funding total cost from “general fund” taxes vs. charging average cost as a user fee.

I do agree in large part on corporate tax breaks justified on ‘economic development’ grounds. BTW, for some good reading on the subject, check out David Cay Johnston’s Perfectly Legal and Free Lunch.

The area of corporate-government interplay that bugs me the most is the existence of “economic development” breaks to companies. States and cities vie for development with breaks paid by all other taxpayers, and the site selection turns into an auction. If the unequal treatment inherent in economic development incentives were abolished, cities and states would compete on the basis of the quality of schools, infrastructure, social amenities, and work force. Instead, we rob the budget for all these things in order to compete at the auctions. The little shop is taxed to provide a gift for Walmart, which will drive up the little shop’s costs and compete for its customers. I have nothing against Walmart, but it is not the most logical recipient of a public gift.

Yeah, an infinitely long-lived firm under certain market structures ought to recover all of its costs from its customers (which may or may not resemble the general population) in the limit, but in practice firms have finite lives and exercise market power which may allow them to earn economic profits. So in practice, it’s possible to tax away surpluses that would otherwise accrue to shareholders.

As I said in the post, looking at the notional distortion (“chill[ing] capital investment”) in isolation is inappropriate. Where would FedEx be without airports and highways funded at least in part by way of distortionary taxes?

In the long run, isn’t every cost of a going concern passed through to customers?

And if it were possible to institute a tax that could not be passed through, isn’t that a simple confiscation whose effect would be to chill capital investment, and therefore worker productivity, and therefore worker incomes? If FedEx just had wagons and handcarts instead of jets and trucks, its employees would make very little.

I only have six hours of Principles of Economics to my name, but I have strived for a better understanding for decades. I hope you can take time to respond.