An economist explains why the conservative argument that high corporate taxes and burdensome regulation are preventing businesses from hiring an prolonging the recession is false. It begins with his TV appearance with someone from the Heritage Foundation:
A couple of hours after talking to an ABC correspondent about the woeful job numbers and what might be done to improve them, I was in the Bloomberg TV studios debating a guy from Heritage. He went on for several minutes about the damage being done by high taxes, excess regulation, business “uncertainty” about future tax hikes and regulatory burdens. I asked Bloomberg’s host whether he was aware that corporate profits relative to national income had just hit a 60-year peak? He had heard rumors to that effect. Was he aware that taxes on corporate earnings were at a 60-year low? The Heritage guy had heard that might be the case.
Then why was uncertainty about taxes and the future burden of the Affordable Care Act holding back business investment and hiring right now? If managers thought taxes or regulatory costs might go up in the future, wouldn’t it make sense to take advantage of today’s low taxes and lower burdens to invest and hire today? According to the “uncertainty” argument, businesses are fearful they might face high taxes and extra health costs in 2016 or 2018. Shouldn’t they expand hiring right now and scale back employment when they actually face higher costs (if they ever do)?
The “tax uncertainty” and “regulatory uncertainty” arguments would make more sense if, say, taxes were already high and might be going higher or regulatory burdens were heavy and might be getting heavier. But when taxes are at a 60-year low and the regulations are pretty much the same as they were in the 1990s boom, the argument makes no sense at all. As we used to say down on the farm, you should “make hay while the sun shines.” In other words, if you think it’s going to rain later in the week, it strengthens the case for cutting and baling right now.
The odd thing is, when businesses are asked why they’re not expanding, “high taxes” and “heavy regulatory burdens” and “tax uncertainty” don’t feature as prominent answers. They mostly say they don’t see good prospects for extra sales. But right-wing economists have their talking points, even if they make little sense, and they’re sticking with ‘em.
The problem with this entire debate is that it rarely goes beyond the superficial — more regulation vs less regulation, more taxes vs less taxes, more government spending vs less government spending. But the questions we should be asking are more complex:
Which regulations are achieving their goals and at what cost? Which ones are doing little good and only serving the interests of powerful corporations, protecting them from competition and preserving their market share at the expense of more innovative start-ups?
Which taxes are most cost-effective? Which taxes are progressive and which are regressive and how do we make the overall tax system more fair? What is the proper mix of the various types of taxes and how do they affect spending, saving and investment?
What government spending actually serves the public good? Which programs have ostensible public goals but primarily aid private interests? Which programs end up being mostly corporate welfare? Which programs spend money primarily on invading the privacy and reducing the liberty of our citizens?
These are the important questions. And sometimes right and left can even agree on the answers. Look at the recent Green Scissors report by an unusual coalition of groups — Friends of the Earth, Public Citizen, Taxpayers for Common Sense and the Heartland Institute — that identified hundreds of billions of dollars in savings from programs that harm the environment and serve mostly private interests, like subsidies for ethanol and for the oil and gas industry.
But we can only answer those questions reasonably if we move beyond the superficial and beyond partisan bickering.