Former economist Paul Krugman has actually managed to get these words past an editor at the New York Times:
There is, however, one big difference between corporate persons and the likes of you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.
Now I think we can be quite sure that even Paul Krugman, with his gargantuan capacity for forgetting everything he once knew, is well aware that we already live in a world where only human people pay taxes. That’s an instance of the general principle that the legal incidence of a tax does not determine its economic incidence. The corporate income tax is levied by law on corporations, but its economic effects are felt entirely by humans.
Why then, did he write this in the first place? Well, the charitable reading — and I am all in favor of charitable readings — is that all he’s saying is that the legal incidence of taxation has shifted somewhat from corporations to individuals.
But why would that be interesting? And why would it be, as Krugman seems to take for granted, a clearly bad thing? Suppose that in 1990, I received a $1 dividend and paid a 25% tax, keeping 75 cents in my pocket, while in 2014, due to a fall in corporate rates (leading to higher dividend payouts) and a rise in personal rates, I received a $1.50 dividend and paid a 50% tax, keeping 75 cents in my pocket. Who cares?
Well, perhaps there are reasons to care, involving some non-obvious incentive effect of the sort that it takes an economist to notice. Well, that, then, is where the economist comes in — his job being to explain why he thinks these things matter. In this case, I don’t offhand see the argument, but I’m perfectly happy to believe there might be one. On the other hand, if Krugman actually has an argument in mind, one wonders why he’s so reluctant to share it.
Oh, he does pay lip service to the need for an argument, but all he offers is sophistry:
There are some good reasons to tax profits. In general, U.S. taxes favor unearned income from capital over earned income from wages; the corporate tax helps redress this imbalance.
But, as Krugman well knows, there simply is no theory suggesting that capital and wages should be taxed at the same rate in the first place, so there’s no “imbalance” to redress. Indeed, mainstream theory tells us that the optimal long-run tax rate on capital is zero, so that if there’s currently an imbalance, Krugman’s got the direction wrong.
Might there be good reasons to believe that the mainstream theory is not the final word and that capital income should be taxed at a positive rate? Sure. But a) There’s still no reason to believe that rate should be the same as the tax rate on wages and b) It’s Krugman’s job to explain what those reasons are.
Instead, he plays to the crowd, and in this case the crowd he’s playing to is some combination of too dumb and too bigoted to care about anything that might resemble an actual argument. (If you doubt me, spend a few minutes scanning his comments section.)
Krugman’s minor sin is that he lies about the content of economics — for example, misleading readers about the incidence of taxes or the desirability of one tax rate over another. His major sin is that he (in effect) lies about the nature of economics, leading readers to believe that it’s all about politically convenient slogans (like “redress the balance”) as opposed to, you know, logical thought. In other words, he’d rather be a demagogue than an economist. But I say the world has too many demagogues and not enough economists, and I do wish Krugman would do something to redress the balance.