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Krugman’s Laffer Curve Admission: Business Tax Rates Too High and Non-Optimal

April 29th, 2012 · 3 Comments · Economics

I recently added ABC’s This Week back to my Tivo since ABC took my veiled and tongue-in-cheek advice and jettisoned the talented but regrettably snooze-inducing Christiane Amanpour. (Great to have George S. back, but I’d love to see the awesome Jake Tapper in the host chair again.)

Today’s episode featured a mildly bullying interchange between Krugman and Carly Fiorina where he either completely misunderstood her point or purposely attempted to put misleading words in her mouth. In this process, he inadvertently validates the notion that our corporate tax rates are too high, and that the Laffer Curve is alive and well.

The topic of conversation was why U.S. corporations are moving their operations overseas. Check out this (edited) clip below:

Fiorina says our business tax rates are the highest in the world which is true (in the case of corporate rates):

Corporate tax rates for web

Krugman aggressively attempts to “refute” her point by oddly changing the subject to tax receipts(??). While he is accurate in his assessment that receipts are comparatively low, (at least as a percentage of GDP) this completely validates Fiorina’s main point about how businesses will aggressively pursue avoidance strategies (which include moving overseas!).

Decision: Fiorina

Bottom line. High rates induce companies to move overseas, which results in lower receipts. Make rates way too high and you’ll see an obvious disconnect between the two numbers. Sounds like a classic manifestation of the Laffer Curve to me…


3 responses so far ↓

  • 1 GvanR // Apr 30, 2012 at 10:01 am

    There must be something fundamentally wrong with you. You post a one-year (2011) snapshot and think you’ve accomplished something. First, if you present and average of the last ten years you” find that the U.S. effective corporate tax rate drops this country to 11th place, it was higher during the Bush years. Second as a % of GDP the US has surpassed the OECD average only in the years before 1982 and then again in 1995. Oh, by the way, these figures come from the Business Roundtable. Do you have a degree in anything?

  • 2 Steve Broback // Apr 30, 2012 at 1:35 pm

    A degree in Economics and a Business degree with a Finance concentration from the University of Washington. How about you?

    All I’m doing is agreeing with Krugman — that our receipts as a percentage of GDP are relatively low. He describes a snapshot. As does Fiorina, as does Laffer. I agree with all of them, and the most recent data you can find completely backs them (and me up.) Knock yourself out with how you want to average or aggregate, and the result stays the same. Our corporate tax rate is undeniably the highest (or second highest) among OECD countries, and our receipts low.

    High rates and low receipts indicate avoidance. Exactly the point Laffer and Fiorina make and Krugman’s data supports. High taxes result in companies moving operations overseas.

    “Business Roundtable”? What are you smoking? Read my sources. Sheeesh.

    Thanks for playing.

  • 3 - // Oct 26, 2012 at 7:43 pm

    I don’t have a degree in economics, but I think what Krugman was trying to argue is that the US has more “loop holes” in our tax code for corporations, so while the marginal rate might technically be higher, the effective marginal rate is not. Please excuse any ignorance I might have displayed.

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