The Art of Distraction

Prof. Mishra has a knack for changing the subject.

When asked about income taxes, he talked about corporate taxes. When asked about the Federal Reserve, he brought the conversation around to Glass-Steagall. When asked about the Community Reinvestment Act (CRA), his focus turned to the “government-sponsored enterprises” (GSEs): Fannie Mae and Freddie Mac.

Here’s how he did it:   Continue reading “The Art of Distraction”

Reader Requests: How Do Corporations Do-Do That Voodoo?

A reader asks: You claimed that the United States has an average corporate tax rate of 13.4 percent, despite a statutory tax rate of 35 percent. How did you calculate the “average” corporate tax rate?

Actually, I didn’t calculate it. The Bush Treasury did. They divided corporate taxes by corporate capital income.

Another reader asks: Do small corporations pay the same “average” or “effective” tax rate as bigger corporations?

Technically, small corporations are supposed to pay less in taxes. Like individual income tax rates, statutory corporate tax rates are progressive: 15 percent on the first $50,000 of income, 25 percent on income from $50,001 to $75,000, 34 percent on income from $75,001 to $10 million, and 35 percent on income above $10 million. (It gets way more complicated, but the details aren’t relevant here.)   Continue reading “Reader Requests: How Do Corporations Do-Do That Voodoo?”

Reader Requests: How Does This Taxable Wage Cap Work, Exactly?

A reader asks: You recommend raising the taxable wage cap. What would be the effect on the maximum benefit? Could the benefit be frozen?

The taxable earnings base is a cap on both taxes and benefits. Therefore, if we remove the the cap, both taxes and benefits would increase (but only for people earning more than $106,800). According to the Congressional Research Service, this change would eliminate 95 percent of the projected 75-year shortfall in the Social Security Trust Fund.

Yes, we can “freeze” the benefit. We can keep the cap on benefits but eliminate it on taxes, resulting in a tax increase for people earning more than $106,800 with no compensating increase in their benefits. According to the CRS, this change would eliminate 115 percent of the projected 75-year shortfall.   Continue reading “Reader Requests: How Does This Taxable Wage Cap Work, Exactly?”

Don’t Repeal the CRA. Expand It.

In 1977, Congress passed (and President Jimmy Carter signed) the Community Reinvestment Act to reduce discrimination in lending.

Specifically, many banks were ignoring creditworthy, qualified borrowers in low-income, mostly-minority neighborhoods — a practice known as “redlining.” If banks were going to accept federal deposit insurance and access to the Federal Reserve’s discount window, the least they could do was make credit available to everyone who deserved it, regardless of where they lived or what color their skin was.

The CRA empowered regulators to “encourage” banks to lend to these borrowers — if they were just as likely to repay as borrowers receiving loans in other communities. The law didn’t specify how to encourage this behavior, so it took awhile for regulators to figure out how to enforce it.   Continue reading “Don’t Repeal the CRA. Expand It.”

A Failure to Communicate, Not a Failure to Stimulate

It’s a little difficult to reply to Prof. Mishra’s latest op-ed because it doesn’t really have a point. It goes all over the place. As far as I can tell, the only actual argument he makes against President Obama’s American Jobs Act is:

…the first stimulus bill in 2008, a $700 billion package geared toward government spending to stimulate the economy, and financed with borrowed money, has obviously failed to create new jobs.

He never offers any evidence to support this claim.

I’ve disproven this hypothesis before, but I’ll do so again — first by repeating what I said last time, then with even more evidence. If you’ve already read the first part, you might want to skip to the new stuff, though it can’t hurt to refresh your memory…   Continue reading “A Failure to Communicate, Not a Failure to Stimulate”