In Which Paul Krugman Leaves Me At a Loss for Words

Okay, this one’s almost too bizarre for words. First, Paul Krugman makes an argument that ignores the existence of corporate dividends. Then, pretty much everybody in the world points out his error. Then, he admits his error, but, true to form, takes an irrelevant swipe at his critics. But in this case, the irrelevant swipe is: “Aha! You’ve just admitted that corporations pay dividends! So much for your past claims that corporations pay wages!”

Umm…Paul? They pay both. I’d lift Krugman’s own favorite dismissive phrase and say “That’s Economics 101″, but actually it’s probably standard knowledge among middle schoolers.

To review the details:

First, Krugman reposted (from the website of a left-wing advocacy group) a highly misleading chart purporting to illustrate the federal tax burdens borne by various income groups. The chart accounts for payroll and income taxes, but omits corporate taxes, thereby making the burden on high-income tax payers appear substantially smaller than it is, because corporate taxes reduce dividends which are disporportionately paid to high-income taxpayers.

Next, he got called on it by lots and lots of people, including, for example, Greg Mankiw.

Next, Krugman acknowledged his error. But, as always, he did so with the least possible grace, suggesting that his critics, by virtue of pointing out Krugman’s mistake, have somehow undermined their own principles.

In particular, his position is that by acknowledging that corporate profits benefit shareholders, “conservatives” have undermined their own ability to claim that corporations benefit anyone other than shareholders (e.g. workers). He relies, in other words, on the cockamamie notion that if something is good for group A, it can’t possibly also be good for group B.

If Krugman’s point is that all profits are paid to shareholders, well duh. Surely nobody, nowhere, never, nohow, has ever suggested otherwise.

But if his point is that you must claim a share of those profits in order to benefit from capital accumulation, then he really has stopped even pretending to be an economist. As Professor Krugman is surely well aware, the accumulation of capital is the primary driving force behind the growth of wages.

In other words — and this is exactly what Krugman is denying — if you work for General Electric, you might have a good reason to be glad that General Electric is around. Even if you don’t own any stock.

(Actually, it’s not just GE’s employees who benefit from GE’s capital accumulation; it’s workers everywhere. Example: GE hires a bunch of workers, which makes it harder for IBM to hire workers, which forces IBM to pay higher wages. But if that’s too subtle for Paul Krugman, we can focus on just the GE workers and still devastate his argument.)

In summary: Everybody who knows any economics knows that corporate capital accumulation can benefit both workers (via wages) and stockholders (via dividends) at the same time. (Well duh again.) Krugman makes some bogus argument about taxes that ignores the existence of the dividends. Mankiw and others point out that the dividends exist. Krugman says: “Okay, you’re right, but I hope now you’ll finally stop claiming that wages exist!”

I’d love to find the perfect closing sentence to capture the flavor of this peremptory illogic, but I’m stumped. What should the final line of this post have been?

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60 Responses to “In Which Paul Krugman Leaves Me At a Loss for Words”


  1. 1 1 Otto Maddox

    I hope Krugman gets that brain tumor fixed.

  2. 2 2 Swimmy

    Absolutely baffling. I thought you might be overstating things, but when I actually read the Krugman post I found you were being sorta nice to him. You suggests that he relies on the logic that if something is good for group A it can’t also be good for group B.

    Maybe that’s his underlying thinking, but in the post he doesn’t rely on any logic at all. He plainly asserts it with no defense. I have read the post over and over trying to figure out what the smart Krugman underneath actually meant to say and I can’t find anything.

  3. 3 3 J Storrs Hall

    Well, maybe he had a stroke or something. It happens. But the best theory I’ve heard is that he lets his left-wing-nut wife post under his name, and she really doesn’t know the first thing about economics.

  4. 4 4 andy

    I read the text and it seems to me that Krugman is making the case that you should not impute all corporate taxes to owners because of tax incidence problem. Which is a sensible view; only that not including corporate tax doesn’t help; and if you want to take tax incidence into account, you shouldn’t stop at the coporate tax…

  5. 5 5 Gene Hayward

    “Why, oh, why can’t we have a…”

  6. 6 6 Steve Landsburg

    andy: you should not impute all corporate taxes to owners because of tax incidence problem.

    You are right that this is a sensible view and could have been the basis of a sensible Krugman post. Of course if he had made that sensible post, he’d have also pointed out that the personal income taxes paid by the wealthy have the same tax incidence issues and so should be partly imputed to the less wealthy. I doubt that that post is forthcoming.

  7. 7 7 Dmitry Kolyakov

    Isn’t it a time for a broader discussion on the origins of increased demand for this “scientific krugmanism”, what social trends cause it and what can be done?
    Just pointing his tricks time after time really doesn’t seem to change much – some people see through it anyway and some just refuse to see…

  8. 8 8 ThomasBayes

    Is Krugman claiming that he didn’t include corporate taxes because including them would have made his point even stronger? So he omitted them because he wanted to weaken his case? Okay.

    And once again he shows some second-hand charts to make the point that the inclusion of corporate taxes illustrates how our taxes have become increasingly regressive over time. Why not look directly at the CBO data?

    Here’s a plot of the total effective tax rate as a function of time for all quintiles, plus the top 10, 5, and 1 percent:

    http://db.tt/Sd1T217i

    Here’s the source:
    http://www.cbo.gov/publications/collections/tax/2009/effective_rates.pdf

    Can someone look at the plot and describe how to make the case that taxes have become more regressive during recent times. I can see that for the early 80′s, but moving forward it appears that taxes rose then dropped on the high income earners. Compared with 1985, isn’t it fair to say that current taxes have become much more progressive? In particular, look at what happened after the Bush tax cuts. Can you use this chart to make the case that the Bush tax cuts stuck it to the middle class?

    On that topic, take a look at the chart for income taxes:

    http://db.tt/CiPly1eE

    One consequence of the Bush tax cuts was to make the average rate for the bottom 40% of taxpayers dip below zero. The data I’m using only go back to the late 70′s, but look at the historical significance of that. Regressive?

    I hear progressives say they just want to go back to the Reagan era taxes. Really? In the mid-eighties the upper percentiles paid about the same income tax rates that they are paying today, but the lower 80% paid a higher rate.

    I’m not suggesting that we use these data to make a case for raising or lowering taxes on any group. I am suggesting that these data shouldn’t be used to make the case that recent changes in tax policy have shifted the burden from the high- to low-income earners. Many people, however, seem to suggest that they do.

  9. 9 9 Ken B

    I pointed out on another thread, that Krugman has already stated he sees his role as making effective arguments for his side. Not correct ones.
    I mean this quite seriously. Kruggers is smart enough and knows enough economics to get this right in the first place. Or to find the flaw in his argument. Or to check the source. Or to work an example to double check. But instead once he frames an effective argument for his side he just goes with it and does not apply his (formidable) critical thinking skills. Look what a good job Thomas Bayes did of it here, after raising the question yesterday, and he’s not getting paid.

  10. 10 10 Ken B

    Steve’s point about capital formation is important. I was stunned arguing with an articulate, intelligent, thoughtful ‘progressive’ last month when I said we want more capital formation and he cut me off insisting we want less, that we already have enough capital. (Even when i was arguing that we want to get the rich to consume less and invest more so the capital comes from reducing Bill gates’s partying.) The fallacy Steve deflates seems very widespread.

  11. 11 11 Floccina

    I have a further critique of Kurgman’s comments. Democrats like to include FICA as a tax but if it is a tax then it is welfare but if I say that we should treat SS as welfare and reform the tax blowing the cap off it and making the payout paying out that same amount to everyone, they protest that it is a retirement program. They also argue that FICA is a tax but defend it as a retirement program by pointing out that the return is not that bad, if there is a return then FICA is an investment not a tax. I think that their positions on SS are self contradictory.

    I like to say: Social security is welfare program disguised as a Ponzi scheme to make it palatable to the American voter.

  12. 12 12 Alan Wexelblat

    I’d like to swerve to a side point if I may. You say “corporate [...] dividends [...] are disporportionately paid to high-income taxpayers.”

    I’m doubtful of this based on my work experience in the financial industry but I freely admit that my own view is limited and wonder if you have a data source.

    To wit: dividends are paid to those who hold certain stocks for a long period of time. Not all companies pay dividends, even those with high earnings. Famously, Microsoft did not pay dividends for many years and to this day some of the high-earning newer companies in various sectors (e.g. tech, biopharma) do not. We might generalize this to say that dividends are paid by so-called “blue chip” stocks.

    The question then is “who are the major stockholders of these blue-chip corporations?” and the answer to that is generally not “high income individuals.” The major stockholders are things like pension funds and certain mutual funds. In turn _their_ major holders are blue-collar and middle-income individuals.

    High income individuals tend to invest in things that bring income based on things like change in asset value. Investment income in the form of dividends is dwarfed by investment income in the form of straight profit-by-sale, particularly when you factor in the buying and selling patterns of things like ETFs which are again primarily held by high-income individuals.

    So while I cannot disagree with your assertion that Krugman appears to have gone seriously off the rails, I think your statement about dividend recipients may not be correct.

  13. 13 13 nobody.really

    For a guy who is at a loss for words, that Landsburg guy is darned loquacious ….

  14. 14 14 Prometheus

    Ken B writes:

    “I pointed out on another thread, that Krugman has already stated he sees his role as making effective arguments for his side. Not correct ones.
    I mean this quite seriously. Kruggers is smart enough and knows enough economics to get this right in the first place. Or to find the flaw in his argument. Or to check the source. Or to work an example to double check. But instead once he frames an effective argument for his side he just goes with it and does not apply his (formidable) critical thinking skills.”

    Interesting. I think Mankiw and Landsburg do the same thing. Krugman points out an example just this morning where Mankiw once wrote:

    “The corporate income tax shows how dangerous the flypaper theory of tax incidence can be. The corporate income tax is popular in part because it appears to be paid by rich corporations. Yet those who bear the ultimate burden of the tax—the customers and workers of corporations—are often not rich. If the true incidence of the corporate tax were more widely known, this tax might be less popular among voters.”

    The link is here:

    http://gregmankiw.blogspot.com/2006/05/corporate-tax-rates.html

    So apparently, depending on the argument, and the length of time one chooses to focus on, corporate taxes are either paid by the rich, or by the not rich — according Mankiw. The ideology here is simply governments are bad, and taxes paid only feed the problem. Arguments are simply filled in to support that point.

  15. 15 15 Ken B

    Prometheus gets a twofer — he misunderstands me and he misunderstands Mankiw. Here is my proof. What Mankiw said in that quote is quite correct. As we have seen on this very blog, actual tax incidence can be surprising and is often non-obvious. So if Prometheus thinks he has caught Mankiw here it is because he misunderstands Mankiw. Citing Mankiw not doing what Krugman did to dispute what I said Krugman did shows Prometheus did not understand me. Twofer, QED.

  16. 16 16 Twofer

    Landsburg writes:

    “The chart accounts for payroll and income taxes, but omits corporate taxes, thereby making the burden on high-income tax payers appear substantially smaller than it is, because corporate taxes reduce dividends which are disporportionately paid to high-income taxpayers.”

    Mankiw writes:

    “The corporate income tax shows how dangerous the flypaper theory of tax incidence can be. The corporate income tax is popular in part because it appears to be paid by rich corporations. Yet those who bear the ultimate burden of the tax—the customers and workers of corporations—are often not rich.”

    And Ken B writes:

    “What Mankiw said in that quote is quite correct. As we have seen on this very blog, actual tax incidence can be surprising and is often non-obvious.”

    So Krugman is somehow wrong for leaving out corporate taxes in the analysis because according to Landsburg, they make it look like the rich arn’t paying as much as they actually do, according to Mankiw it makes the customers and workers look like they aren’t paying as much as they actually do, and according to Ken B the tax incidence is surprising and non obvious.

    Twofer obviously isn’t very bright, so he needs guidance. All he wants to know is, who, according to KenBQED, is impacted by corporate taxes and how should they be accounted for among the various tax brakets?

    And while we are at it, let’s get to questions about the real argument that’s actually being discussed. The case for low rates on capital gains is that by taxing investment income as ordinary income, we effectively discourage saving: if you spend your income now, you pay taxes only once, while if you invest for the future, you pay taxes twice, so eat, drink, and be merry.

    Where exactly can I find the evidence that this effect is at all important? Twofer is not a fan of thought experiments, he prefers actual studies and actual data. Twofer thanks you in advance for such links.

  17. 17 17 Thomas Bayes

    @Prometheus: Krugman’s argument is ridiculous. Mankiw says “one thing is certain: People pay all taxes.” Krugman then uses this to argue that we should omit corporate taxes when we analyze the taxes that people pay. What?

    It is one thing to say I’m not sure that the CBO is distributing the burden of corporate taxes in the appropriate way. But I can’t understand why that would justify completely omitting corporate taxes from a relative comparison of tax rates.

  18. 18 18 Steve Landsburg

    Twofer:

    So Krugman is somehow wrong for leaving out corporate taxes in the analysis because according to Landsburg, they make it look like the rich arn’t paying as much as they actually do, according to Mankiw it makes the customers and workers look like they aren’t paying as much as they actually do, and according to Ken B the tax incidence is surprising and non obvious.

    There are two ways to approach the question of “who pays the most taxes”. There’s the naive way, where you just look at everyone’s tax bill, and there’s the sophisticated way, where you try to figure out who was really impacted by those taxes (so that, for example, if I pay a sales tax on oranges, then the price of oranges is driven down, so orange growers are actually impacted even though they write no checks to the government).

    The advantage of the sophisticated way is that it’s more enlightening. The disadvantage of the sophisticated way is that it’s really really hard to get it right.

    Krugman chose the naive way. For example, he counted employee payroll taxes as if they were paid by the employees, whereas in fact it’s possible that some of these taxes are paid indirectly by employers (via their effect on wage rates). If you’re doing this the naive way, then corporate taxes, like payroll taxes, should be attributed to those who actually pay them. One should then issue a blanket caveat saying that all of this is a very rough approximation to the truth, because it ignores a bazillion indirect effects.

    That’s defensible. But I don’t see how you can possibly defend counting income and payroll taxes the naive way while insisting that corporate taxes should be accounted for only in the sophisticated way. That’s something you’d do only if you were trying your hardest to rig a particular outcome.

  19. 19 19 Patrick R. Sullivan

    ‘What should the final line of this post have been?’

    Something like, ‘It’s amazing how much economics Paul Krugman had to know to win the Nobel prize, and it’s equally amazing how much economics he had to forget to write his NY Times columns.’

  20. 20 20 Silas Barta

    I actually was able to point out in the comments Krugman was conceding the point and then changing the topic, and actually got several replies … with more evasion. Sad.

    In short:

    Krugman: The rich pay only a 15% tax rate.
    Commenters: But what about the corporate tax that they effectively pay.
    Krugman: Okay, then their effective tax rate is much higher, but ignore that because Mitt Romney said corporations are people and the rich used to pay even higher taxes.

  21. 21 21 Andy B

    SL: “If you’re doing this the naive way, then corporate taxes, like payroll taxes, should be attributed to those who actually pay them.”

    This may be naive but isn’t it corporations that pay them? I own lots of stock but I don’t ever recall getting a tax bill from the IRS on any of them.

  22. 22 22 Steve Landsburg

    Andy B: Fair enough. I should have said something more like “those who are directly affected by them”.

  23. 23 23 Brian

    John Cochrane calls PK out on more than just his “economics.” (see link below)

    Why can’t the far left call him out on his bs and ask him to stick to substantive differences in values. that is at least legitimate.

    http://johnhcochrane.blogspot.com/2012/01/stimulus-and-etiquette.html

  24. 24 24 Andy B

    Steve: I should have said something more like “those who are directly affected by them”.

    Thanks for the clarification but I’m still stuck on something. Isn’t figuring out those who are directly affected by them (corporate taxes) a sophisticated exercise? If so, and I wanted to be consistent and defensibly naive, why wouldn’t it be okay to just ignore them?

  25. 25 25 Bob Murphy

    Steve:

    I am coming at this sort of like Andy B. is. I agree Krugman is being a jerk, as usual, but I don’t think he’s quite as ridiculous as you’re making him to be on this one.

    In particular, you are actually slightly editing his argument when you summarize it like this:

    [Krugman's] position is that by acknowledging that corporate profits benefit shareholders, “conservatives” have undermined their own ability to claim that corporations benefit anyone other than shareholders (e.g. workers).

    Yes, if that were his position, it would be silly. And if Krugman tried to argue with Mankiw on it, that’s basically the corner into which he’d paint himself.

    However, Krugman is right that “conservatives” will take one stance or the other on tax incidence, depending on how it suits their preference for low taxes on the rich. A lot of pundits would indeed denounce a corporate tax rate hike by saying “they’ll just pass it on to consumers, and they’ll lay off workers.”

    Now granted, it’s a low bar for Krugman to be pitting himself against Sean Hannity, but I think that’s what he does in any post that doesn’t have “Wonkish” in the title.

    In other words, I think Krugman views his NYT role as exploding bogus arguments by “right wingers,” whether or not he can actually defend the opposite of their conclusions.

  26. 26 26 Terry

    Ever noticed how you and your commentors spend an inordinate amount of time trying to work out a logical underpinning for PK’s silly rants?

    PK obviously just want to scream “X!” and he just as obviously spends little time constructing a logical foundation for his scream.

    So, often the commentary here devolves into “is there any reasonably logical framework that might come to the conclusion “X”?

  27. 27 27 Bob Murphy

    Shoot! Sorry Steve I meant to include this in the quote:

    He relies, in other words, on the cockamamie notion that if something is good for group A, it can’t possibly also be good for group B.

    So I’m saying Krugman isn’t consciously invoking that in his mind. He knows that “conservatives” will say “corporations don’t pay taxes! people pay taxes! hiking corporate taxes just hurts the little guy!” and so now he’s busting them.

  28. 28 28 Sean

    Bob,

    I don’t think Steve would disagree with you. But Krugman definitely thinks of himself better than another Rachel Maddow, I think. If he’s switching between economic and accounting tax incidence, he’s not exactly clarifying that point. Did he bringing up economic tax incidence in the payroll and income taxes?

    No, he wanted to pretend that the previous chart still meant something. It would absolutely be interesting to know how the drop in corporate tax rates changed the economic tax incidence of the highest income earners.

    But he is still on with a non-sequitur. You can’t compare accounting tax rates across income levels without including corporate tax. If you want to see how much they’re paying in tax, the rich can often move it between corporate and income tax. Now, have the amounts being paid in corporate tax shifted over the years as the rates dropped? Yes. Did they shift in such a way that the economic tax incidence benefited the workers? Maybe. Krugman doesn’t say or do the research. The conservatives he’s arguing against (he links to Mankiw, twice) aren’t claiming the things he’s saying they’re claiming.

  29. 29 29 Eric

    I didn’t know that Professor Krugman has a blog… I thought that he’d stopped writing anything years ago. Mr. Krugman’s blog, though, is very frustrating. In it Mr. Krugman seems to pick and choose his economic principles as befits his argument.

    I miss Professor Krugman…

  30. 30 30 PrometheeFeu

    I’m always baffled by arguments that profits are only given to shareholders and not workers. To put it simply, profit = revenue – costs. Payments to workers go in the “costs” column. So if you take a dollar of profit and pay it to a worker, it is no longer “profit”. It is a “cost”. Complaining that workers don’t get paid profits is kind of like complaining that dead people don’t have brain activity. It is by definition impossible.

  31. 31 31 Seth

    The final line I took on Krugman about 11 years ago when I first read him was that he’s not worth my time.

    I figured that if you had to perform such mental gymnastics to try to figure out what he’s “really saying,” then my time could be much better spent reading folks who can actually convey what they mean well, like you, for instance.

    Krugman may be right about some things and wrong about some things, but it amazes me how much attention he’s able to draw with his preschool antics & a Nobel.

  32. 32 32 Twofer

    SL Writes: There are two ways to approach the question of “who pays the most taxes”. There’s the naive way, where you just look at everyone’s tax bill, and there’s the sophisticated way, where you try to figure out who was really impacted by those taxes

    Twofer: Agree so far.

    SL: (so that, for example, if I pay a sales tax on oranges, then the price of oranges is driven down, so orange growers are actually impacted even though they write no checks to the government).

    Twofer: And this is where you and Mankiw part ways. Mankiw writes in his Econ 101 textbook: “Many economists believe that workers and customers bear much of the burden of the corporate income tax. To see why, consider an example. Suppose that the U.S. government decides to raise the tax on the income earned by car companies. At first, this tax hurts the owners of the car companies, who receive less profit. But over time, these owners will respond to the tax. Because producing cars is less profitable, they invest less in building new car factories. Instead, they invest their wealth in other ways—for example, by buying larger houses or by building factories in other industries or other countries. With fewer car factories, the supply of cars declines, as does the demand for autoworkers. Thus, a tax on corporations making cars causes the price of cars to rise and the wages of autoworkers to fall.”

    SL: The advantage of the sophisticated way is that it’s more enlightening.

    Twofer: In theory yes.

    SL: The disadvantage of the sophisticated way is that it’s really really hard to get it right.

    Twofer: Agree, as witnessed by you and Mankiw not agreeing to something as basic as who actually pays corporate taxes, which only leads me to believe the theory remains un-proven, and therefore is susceptible to convenient interpretations.

    SL: Krugman chose the naive way.

    Twofer: Agree

    SL: For example, he counted employee payroll taxes as if they were paid by the employees, whereas in fact it’s possible that some of these taxes are paid indirectly by employers (via their effect on wage rates). If you’re doing this the naive way, then corporate taxes, like payroll taxes, should be attributed to those who actually pay them.

    Twofer: In the naïve way, the corporation paid the taxes, not the people.

    SL: One should then issue a blanket caveat saying that all of this is a very rough approximation to the truth, because it ignores a bazillion indirect effects. That’s defensible.

    Twofer: This is really an excellent point. I wish the whole econ blogosphere followed this suggestion, because the whole field looks pretty bad right now.

    SL: But I don’t see how you can possibly defend counting income and payroll taxes the naive way while insisting that corporate taxes should be accounted for only in the sophisticated way.

    Twofer: He didn’t. It was you and Mankiw that insisted he put them in. When he did, he pointed to a study, and said he was worried that the study overstated the case against the wealthy because he had read Mankiw. The study is here:
    http://elsa.berkeley.edu/~saez/piketty-saezJEP07taxprog.pdf

    SL: That’s something you’d do only if you were trying your hardest to rig a particular outcome.

    Twofer: If anybody looks like he’s trying to rig a result, it’s Mankiw. He’s the one choosing the argument of convenience depending on the point he wants to make. Unfortunately, you hitched your star to his. You’ve at least been consistent (although I would tend to agree with Mankiw Econ 101 that corporate taxes are ultimately borne by customers and employees – Alas, the theory remains unsettled, which is why Twofer is not a big fan of thought experiments. It’s too easy to magnify the impact of something that in reality is quite small.)

  33. 33 33 Joel

    With tongue in cheek…..
    Krugman’s logic is just much more sophisticated than first thought. While it would appear that reasoning such as “if something is good for group A, it can’t possibly also be good for group B” lacks logic, that is because the reader is not imputing “intentional logic” into the equation as Krugman does. In other words, he sees through the veneer and knows that capitalists ONLY pay workers wages in order to be able to get dividends. Since they did not have the intent to actually benefit the workers, the law of “intentional logic” dictates that they did not actually benefit the workers. Once again Krugman slices through reality to darken the issue with piercing insight.

  34. 34 34 ThomasBayes

    @Twofer: Are you serious?

    For example, you cite Steve’s example about paying sales tax on the purchase of an orange, then you cite Mankiw on corporate income tax, then you conclude that Landsburg and Mankiw are “not agreeing to something as basic as who actually pays corporate taxes, which only leads me to believe the theory remains un-proven, and therefore is susceptible to convenient interpretations.”

    The logic for the rest of your ‘interview’ is equally hard to follow, but it could just be me.

    In the end, I believe that Landsburg and Mankiw agree that determining who ‘pays’ the corporate income tax is a complicated and difficult task. But I believe they also agree that it is naive and misleading for Krugman to ignore corporate taxes completely and to boldly state that we have a regressive tax system. Especially when Krugman is surely aware that the way in which the CBO allocates the corporate tax burden shows us to have a strongly progressive system. And think about this: Krugman defended omitting corporate taxes from the analysis by implying that his point would have been even stronger if he had included them.

  35. 35 35 Richard

    PK was saying, in the first post, that if you’re making the argument that the rich have a higher tax burden if you include corporate tax, then you have to deal with the fact that the tax system over time has repeatedly gotten less progressive and more regressive (ie: it hurts the middle class and poor more).

    In the second post on the subject, he clarified further that the Right has made the case for cutting the corporate tax rate because the tax rate actually hurts the workers and consumers more so than the shareholders. But then, in a magical 180-spin-like-fashion, they defend their low income tax figures because they then claim that they actually pay more via the corporate tax.

    Apparently reading is hard for most people on this blog.

  36. 36 36 ThomasBayes

    @Richard: Please provide a link to CBO or IRS data that demonstrate that including corporate tax in the analysis shows the tax system is getting more regressive over time. Although reading is hard for me, I’ll at least look at the data and give it my best try.

    All evidence suggests that PK omitted the corporate tax data because it was a convenient way to make a case that the tax system has become more regressive. If you include corporate tax and assign the payment burden like the CBO does, then I don’t see a credible way to claim that the tax system has gotten less progressive.

    In 1984, the bottom four quintiles paid 10.2, 14.8, 18.0, and 20.4 percent of their income in federal tax. In 2006 they paid 4.3, 10.2, 14.2, and 17.8. Over the same period, the percentage paid by the top quintile increased from 24.3 to 25.8 percent, and the top 1 percent increased from 28.2 to 31.2 percent. What about those data suggests that the tax system changed to hurt the middle class and poor more? Seriously, how do you look at those data and make your and PK’s case? By omitting corporate taxes, perhaps?

  37. 37 37 Ken B

    @Richard: As Steve’s response to Twofer explains, the complaint is that Kruggers counts the corporate tax only as and how it suits him. The inconsistency in Krugger’s counting is orthogonal to the issue whether the tax is destructive.

  38. 38 38 A. C.

    ” Krugman says: “Okay, you’re right, but I hope now you’ll finally stop claiming that wages exist!”

    How about “Not even rocks say things that dumb, Krugman. That makes you dumber than a rock.”

  39. 39 39 Richard

    ThomasBayes:

    Please provide a link to CBO or IRS data that demonstrate that including corporate tax in the analysis shows the tax system is getting more regressive over time.

    No, I will not do that. No where in my post did I make any comment concerning to validity of PK’s position, I merely restated what he was saying for you all. I don’t care to get into a debate over this issue, especially when it involves data mining, at the time.

    KenB:

    As Steve’s response to Twofer explains, the complaint is that Kruggers counts the corporate tax only as and how it suits him. The inconsistency in Krugger’s counting is orthogonal to the issue whether the tax is destructive.

    I did. PK specifically pointed out in a followup post that the Right tweaks corporate tax incidence to cover their asses depending on the situation (not as crudely as I’m saying, but you understand I’m sure.) But moreso in the former post, the whole point was the huge corporate tax cut in 2004 versus the 1960s has shown that the rich pay a substantially smaller amount than what they used to, in a more dynamic economic era, which has causal implications for the rise in inequality. We’re assuming that corporations are facing the full burden of the corporate tax, not the workers/consumers. The corporate tax argument was brought to him to be used against his initial post, so I don’t see how you can claim he brings it up when it suits his interests only.

  40. 40 40 ThomasBayes

    @Richard: Here is everything PK wrote in his first post:
    http://krugman.blogs.nytimes.com/2012/01/18/check-out-their-low-low-taxes/

    As Ezra Klein says, the real issue raised by Romney’s maybe-revelation — are we sure that his tax rate is even as high as 15 percent? How much is shielded in tax havens? We need the returns — is the way our system allows those with very high income to pay substantially lower taxes than the upper middle class. If capital gains and other investment income didn’t receive special treatment, we’d be getting substantially more revenue. Why does our political elite talk only about cuts to social insurance, and not at all about raising more revenue from the upper tail of the income distribution?
    —-
    Where in this paragraph should I see that his “whole point was the huge corporate tax cut in 2004 versus the 1960s has shown that the rich pay a substantially smaller amount than they used to”? Especially when the chart he uses omits corporate taxes, and only shows rates for the year 2007. I know you don’t want to get into data mining, but can you at least show where — in his initial post — Krugman made the point that you are telling us he made in his initial post? You don’t even have to take the time to go look up Krugman’s post — I repeated it here.

    Wouldn’t Krugman have been honest to say “If you omit corporate taxes from the data that the CBO calls total effective tax rate, here’s the total effective tax rate by income for 2007. See how regressive this system is? Including corporate taxes like the CBO does in their plot of total effective federal tax rates,

    http://www.cbo.gov/publications/collections/tax/2009/tax2006_1.gif

    makes the tax system look progressive, but I don’t believe we should include corporate taxes in this way, so I prefer to omit them completely from the analysis.” Then, of course, he would have had to change his title from “Check Out Their Low, Low Taxes” to “Check Out How Low Their Taxes Are When You Don’t Count All Their Taxes.” Well, at least that’s what I think a Liberal might do if they had a Conscience.

  41. 41 41 Richard

    Thomas Bayes:

    Okay, my bad, it’s technically in his second post on the subject,here.

    Good ‘gotch’ya’ moment for you? SL has taught you well.

  42. 42 42 ThomasBayes

    In which I too am left at a loss for words.

  43. 43 43 GregS
  44. 44 44 Ken B

    @Thomas Bayes: Oh I bet you’re not at a loss for words. Just for polite ones!

  45. 45 45 Bradley Calder

    I do not understand how Paul Krugman went from being a great economist who follows his logic where ever it leads him, to one that truly cares more about making points he wants to be true as opposed those which follow logically.

  46. 46 46 Neil

    Bradley Calder

    It is simple. Krugman can multitask.

  47. 47 47 Chad Brick

    “You are right that this is a sensible view and could have been the basis of a sensible Krugman post. Of course if he had made that sensible post, he’d have also pointed out that the personal income taxes paid by the wealthy have the same tax incidence issues and so should be partly imputed to the less wealthy. I doubt that that post is forthcoming”

    Why limit it to the rich, Steve? This is true concerning any tax on anyone anywhere. However, the issue with corporates is, of course, that no human pays the tax directly, so you have to impute it to the next level in order to assign it to anyone. Depending on the market, this burden is split in various ways between stockholders, employees (including management), and customers. This is not true of most other taxes, which are applied directly to an actual human. While we could follow any of these taxes further down the infinite rabbit hole of asking “But how do those taxes change the taxed person’s market behavior, and how much of it are they able to pass along to third parties, and how much are THEY able to pass along, etc”, this is neither useful or meaningful.

    The data you are accusing Krugman of leaving out isn’t what you seem to want it to be – imputation entirely to stockholders – nor is accurate or comparible data available to my knowledge.

    Another issue you seem to neglect is that corporations have any number of rights and priveledges, including the incredibly valuable limited liability. It can easily be argued that their taxes are a price they pay for these rights, which of course, like all rights, come with responsibilities.

  48. 48 48 Caden Banks

    Further, if employees were invested in the stock of their employer, outside of LTI, isn’t that against the investing risk management technique of diversification?

  49. 49 49 Twofer

    Thomas Bayes Wrote: @Twofer: Are you serious?

    Twofer: Yes.

    ThomasBayes: For example, you cite Steve’s example about paying sales tax on the purchase of an orange, then you cite Mankiw on corporate income tax, then you conclude that Landsburg and Mankiw are “not agreeing to something as basic as who actually pays corporate taxes, which only leads me to believe the theory remains un-proven, and therefore is susceptible to convenient interpretations.”

    Twofer: Yes, this is confusing. In Steve Landsburg original post, he wrote a similar example about who pays corporate taxes which I had quoted in my earlier post. In his response to my
    post, Steve used a sales tax example, but the end result was the same (the rich pay em). The whole thread has been a discussion about corporate taxes. When Steve replied using a sales tax example, I just assumed it was an honest mistake, and didn’t really want to pick that nit. I could have been more clear about my assumption.

    ThomasBayes: The logic for the rest of your ‘interview’ is equally hard to follow, but it could just be me.

    Twofer: It wasn’t intended to be an interview, it was intended to be a point by point response to an earlier response from Steve Landburg to me. Much as this one is to you.

    ThomasBayes: In the end, I believe that Landsburg and Mankiw agree that determining who ‘pays’ the corporate income tax is a complicated and difficult task.

    Twofer: I suspect everybody agrees that determining who pays corporate taxes is complicated. If their writings are to be believed, Landsburg and Mankiw don’t agree about who ultimately pays them. They just agree they don’t like Krugman.

    ThomasBayes: But I believe they also agree that it is naive and misleading for Krugman to ignore corporate taxes completely and to boldly state that we have a regressive tax system. Especially when Krugman is surely aware that the way in which the CBO allocates the corporate tax burden shows us to have a strongly progressive system. And think about this: Krugman defended omitting corporate taxes from the analysis by implying that his point would have been even stronger if he had included them.

    Twofer: I agree with much of this. The CBO has a reputation for setting partisanship aside in their analysis, and while I don’t understand how they made their calculation, I’d be willing to accept their result based on their reputation (as long as scandal doesn’t arise and that reputation holds). Be careful though. The CBO received rough treatment on this blog when it came out with it’s numbers concerning health care reform. Don’t be one of these people that only cites the CBO when you agree with their findings. It’s funny to me that Mankiw criticizes Krugman for citing a left wing source in the very same post he cites a right wing source in addition to the CBO.

    Finally, in the context of the Krugman blog, he’s been talking about the .01% all along. The CBO data, while MUCH less dramatic, still supports his points.

  50. 50 50 Ken B

    “It’s funny to me that Mankiw criticizes Krugman for citing a left wing source in the very same post he cites a right wing source in addition to the CBO.”

    Actually I think Mankiw criticized Krugman for funny accounting. Noting that Krugman cited unskeptically a left wing advocacy site helps explain where the cooked numbers came from, and how they got cooked, and perhaps Krugman’s sloppiness, but the criticism stands on its own.

    Great name btw Twofer.

  51. 51 51 roystgnr

    As Professor Krugman is surely well aware, the accumulation of capital is the primary driving force behind the growth of wages.

    The left-wing claim I’ve read is that the success of unionization is the primary driving force behind the growth of wages. I haven’t heard this claim specifically from Krugman, but I wouldn’t say that I “surely” never will.

  52. 52 52 iceman

    @roystgnr: PK has definitely written in the past about the decline in unionization being a negative trend for our living standards…which I found odd coming from someone who had done so much good work on trade theory, e.g. one could argue the main function of unions is to restrict our ability to ‘trade’ (even if domestically) with the counterparties of our choice. Also it seems unionization simply transfers (redistributes) income, whereas capital formation allows us to *create* wealth.

  53. 53 53 Charlie

    I don’t know about specific people, but I can defend the original chart or at least explain what it says and does not say.

    It doesn’t include capital gains taxes (but it does include capital gains income). It seems to me that corporate taxes are taxes on capital, and thus should be treated like capital gains. It’s totally consistent to exclude both.

    “Krugman chose the naive way. For example, he counted employee payroll taxes as if they were paid by the employees, whereas in fact it’s possible that some of these taxes are paid indirectly by employers (via their effect on wage rates). If you’re doing this the naive way, then corporate taxes, like payroll taxes, should be attributed to those who actually pay them…That’s defensible. But I don’t see how you can possibly defend counting income and payroll taxes the naive way while insisting that corporate taxes should be accounted for only in the sophisticated way.”

    I can’t make this make sense, but it’s ok, because no one is using this standard. First, not that the chart includes not just employee payroll taxes, but also employer payroll taxes. If we were doing taxes the “naive way,” the employer payroll taxes, since paid by the firm, would not be charged to the employee. As best I can tell, Mankiw, Krugman and even Landsburg agree that it is appropriate to apply the tax incidence argument that the firm transfers that tax to the employee through a lower wage, so no one is using the naive way. Second, no one has complained that capital gains taxes should be included. Either no one knows what the chart says or everyone is implicitly agreeing with a tax incidence argument that most of capital gains taxes aren’t paid by capital holders. If the latter is the case, then shouldn’t corporate taxes be treated the same way?

  54. 54 54 rjs

    ven accepting that there is double taxation on capital gains: why shouldnt there be? the state exists to protect the elites, so they should pay more to sustain it than the slave class…

  55. 55 55 Steve Landsburg

    rjs: As I’ve said so many times, this is not a question about how progressive the tax system should be. You can make a pure consumption tax as progressive as you like.

  56. 56 56 hyperbollocks

    Steve, you must know from Econ 101 that the supplier does not necessarily bear the burden of a tax.

  57. 57 57 Matt P

    I’m confused by your argument.

    I own a C-corp. The corporation pays taxes. It also pays me. I pay taxes as an individual. That’s two different things. The corporation is not me. Its tax burden has nothing to do with my tax burden.

    Further, we’re in a time when Apple is keeping 2/3 of its cash offshore to avoid paying taxes on it and Google is running a Double Irish and Dutch Sandwich to avoid paying taxes. There’s no reason to assume most corporations are actually paying the amount of taxes their rates might indicate.

    Where am I mistaken?

  58. 58 58 Steve Landsburg

    Matt P:

    Where am I mistaken?

    Here, for starters:

    The corporation is not me. Its tax burden has nothing to do with my tax burden.

  59. 59 59 Matt P

    Why? I don’t want to get into corporations are people haha but they are their own entities. In exchange for having continuity of life, limited liability, et al. my corporation is treated under the law as its own entity. Thus it has to pay its own taxes. If I want to avoid that taxation I should be a sole proprietor. No?

  60. 60 60 Steve Landsburg

    Matt P:

    If I want to avoid that taxation…..

    I had understood you to say that you were not subject to that taxation. Of course if you believe a burden is avoidable, then you must believe it exists, so it looks like we agree on this after all.

  1. 1 Landsburg (and Mankiw) on Krugman
  2. 2 Nobel nonsense « EVOLVE
  3. 3 Landsburg (and Mankiw) on Krugman « Daniel J. Smith
  4. 4 In Which Paul Krugman Leaves Me At a Loss for Words « Daniel J. Smith
  5. 5 Krugman Almost Renders Landsburg and Me Speechless
  6. 6 Monday Grab Bag of Links … | The Pretense of Knowledge
  7. 7 Public Service Announcement at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas from Mathematics, Economics, and Physics
  8. 8 The Daily Climb-Tuesday, Jan. 24th, 2012 | The Daily Climb-Daily Posting Of Relevant Content
  9. 9 The Daily Climb-New Beginning | The Daily Climb-Daily Posting Of Relevant Content
  10. 10 JimSwift.net » Blog Archive » Wednesday Links (2/1/12)
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