So Richard Murphy told us how lovely the Biden corporate tax plan is over at FT Alphaville. I pointed out in the comments that the underlying data is not quite as Murphy – or Biden – would have it:
Figure 1 and following shows a decline in corporate tax as a percentage of the tax take, also relative to GDP, relative to other OECD countries and so on. OK.
Except that is not tax collected from corporations. That is the corporate income tax. They are different things. In the US, very different things for they have C and S corporations. C pay the corporate income tax, S pay – as with Richard Murphy’s own corporate body, an LLP – the individual income tax as flow through bodies.
This matters. Since the 1980s fully 50% of American business activity has moved from C to S corporations. One CBO estimate has it that the revenue change is about 10% of revenue collected. That is, some 10% of Federal revenue that used to be collected as the corporate income tax is now collected through the individual income tax. Which is, when we look at Figure 1, about the decline in the amount collected in corporate tax since 1960.
The correct way to put this is that we have not had a decline in the corporate tax take. Instead we’ve had a change in which income tax we collect from that same set of profits.
A piece written over the weekend and which took its time coming out of the editing queue was published yesterday as well:
We still collect about 20% of our federal money from the taxation of business profits. Here, the claim is that we only gain 10% or below. Therefore we must increase the corporate income tax rate. But that claim is entirely ignoring the fact that we haven’t stopped collecting from businesses at all, not even reduced it for decades. Remember, we’ve just changed to a different tax to collect the same money from the same people and activity.
It cannot be true that the people writing the Made in America Tax Plan don’t know this. The entire point of progressive politics is to put all the bright and well-informed people into government so they can tell the rest of us what to do. So this must actually be an attempt to mislead us.
But gaslighting isn’t a great way to run an economy.
This is an analysis which does stand up. The claim is that tax from corporates has fallen. This isn’t true. Corporate income tax has fallen as a result of the move from C to S corporations.
Wouldn’t it be interesting if we had experts on corporate taxation who actually knew such things? Even, if we had governments that didn’t lie to us.