Tuesday, January 07, 2014

Corporate taxes - 2

My response to the idea of abolishing the corporate income tax is one of skepticism.   I note:
One contra-indication is very evident - corporate profits are at an all-time high, yet corporations apparently do not see sufficient profitable opportunities to invest in.  The level of American business investment is "pathetic".
Well, maybe American corporations are investing their record profits in low-tax countries overseas?  I'm not so sure.  I'm no economist and don't know what time-series to look at, but this is what I was able to produce at FRED (the US Federal Reserve web-site).

Note that the scale on the left applies to the blue curve - US Gross Domestic Investment, and the scale is graduated in a scale of 400 billion dollars.  The scale on the right applies to the red curve,  US private direct investment abroad, and is in graduated on a scale of roughly 50 billion dollars.  Note that the red curve is mostly in the red (negative).  Note that neither scale begins at 0.  Without different scales, on the scale of the blue curve, the red curve looks like a horizontal line hovering around zero.

The point is that corporate income taxes do not deter private investment in the US on a scale that is roughly 20-25 times that the US makes abroad.  Any large effect of abolishing the corporate tax in the US would probably come from foreign capital rushing in.  Likely there will be a domino effect of income tax reductions as other countries abolish their corporate taxes in order to prevent capital flight; and this will help complete the corporatization of the global economy.  Our economic overlords could not be more delighted.