Tom Friedman tries. He tries, really hard, to come up with solutions to the problems of the day. His intentions are honorable. He cares about people outside his rarefied economic bracket without being particularly paternalistic, which I appreciate as somebody decidedly not in that bracket.
It's just painful to see him use argument after argument, week after week, about how a carbon tax could be used to slash other taxes, including corporate taxes. As if corporations truly needed lower tax rates.
This week he put it in terms of energy independence and fighting terrorism, making energy tax policy suggestions. And oh, the economic fallacies... the ignorance, it burns! More after the burning cloud.
First we have this gem:
And the necessary impactful thing that America should do at home now is for the president and Congress to lift our self-imposed ban on U.S. oil exports, which would significantly dent the global high price of crude oil[...]
[...]Both Putin and ISIS are also intent on recreating states from an overglorified past to distract their peoples from their inability to build real economies[...] And, very significantly, they both are totally dependent on exploiting high-priced oil or gas to finance their madness.
I honestly don't think he understands oil pricing in the US. Our oil companies don't sell oil and gasoline more cheaply because they get some of it from the US. As it stands, they use high global prices to justify high prices at the gas pump, even if they purchase US oil for less. We still import
millions of barrels of oil a day. If we were to release US oil to export it to the world market, it would barely budge the global price of oil because we are not a major producer. You'd need to be a net exporter or have an effective monopoly on importation and transit to affect the price, but we'd still be a net importer and leave the shipping to Big Oil.
Sorry Tom, but that solution tanks in more ways than one. Us releasing our oil into the economic wilds of the global market won't dent oil revenues for Putin or ISIS.
Next we have tax policy:
And combine that with long overdue comprehensive tax reform that finally values our environment and security. That would be a carbon tax that is completely offset by lowering personal income, payroll and corporate taxes[...]
[...]And if we shift tax revenue to money collected from a carbon tax, we can slash income, payroll and corporate taxes, incentivize investment and hiring and unleash our economic competitiveness.
And here Mr. Friedman shows an ignorance of Tax Policy 101.
Taxes do several things, including raising revenue for a government, shaping the economy and shaping the wider society. How you tax is every bit as important as what you tax.
For example, a progressive income tax, where wealthy people pay a higher percentage of their earnings in taxes, affects rich people more than poor people because it is a larger share of their budget. However, they have a lot more money, so they are presumably much better able to afford it. A set fee--essentially a one-price tax--affects poor people much more than rich people. A driver's license fee of $50 is chump change to somebody earning six figures, but it's a significant hit if you're working part time at minimum wage.
Also, specific exemptions from taxes shape our wider society. For individuals and families we have tax exemptions for mortgage interest, to encourage people to buy their own homes on credit. For businesses we have tax exemptions on reinvestment, and the salaries they pay are fully tax deductible business expenses.
This means that the higher the tax rate, the higher the deduction you get to claim. On the flip side, the lower the tax rate, the less incentive you have to claim those deductions if you'd rather do something else.
Let's show a business example. Back during the Eisenhower era, the top corporate tax rate was 52%, while the top income tax rate was a whopping 91%. If you were a business owner at that time and had a very healthy $1 million dollar profit subject to those tax rates, you had a choice: you could cash out the $1 million for yourself and your shareholders and have $480,000 after taxes to actually spread around, but possibly subject to that 91% rate, meaning a net after-tax result of as little as $43,200; or you could cash out some of that money and spend the rest on improvements and salaries--say a 50/50 split, which would mean $240,000 after taxes for yourself and your shareholders (to as low as ($21,600) and $500,000 to spend on salaries and reinvestment. The marginal cost of reinvesting was minimal, and the gains from reinvestment could mean a stronger, more profitable company later.
During the Bush II era, by comparison, the top corporate tax rate was 35%, and investors could get returns taxed at the very moderate rate of 15%. That same $1 million could mean $650,000 for yourself and your investors, subject to a 15% tax rate after that, meaning a net after-tax result of $552,500; or do the 50/50 split with $325,000 for yourself and your investors (net after-tax of $276,250) and $500,000 to spend on salaries and reinvestment. There's a much weaker case for reinvestment the more money you can make when cashing out, meaning there's less incentive for businesses to pay better wages or to reinvest in their businesses.
Also, those lower corporate tax rates and lower investment tax rates mean the money has to come from somewhere else. Corporations paid close to half of all federal tax receipts in the 1950s. They pay under 10% now despite record profits.
Corporations do not need lower taxes. The rest of us? If a carbon tax would mean corporations assuming more of the tax burden and making it easier for ordinary citizens to live, I'm all for it, but we'd need the proof. And the proof is something Tom Friedman hasn't given us.