Saturday, October 22, 2016


Friday, October 21, 2016


Thursday, October 20, 2016

At least Congress could say their hands are clean

At Wall Street on Parade: The Fed Has Been Winging It for Eight Years; It’s Time for Congress to Step Up.

"Since the Wall Street crash in 2008", the article says, things have not been good. They point out that capacity utilization is lower now than it was in 2007, and they mention the "sharp decline since November 2014." They show this graph, to which I've added a bright red line:

Since 2008? I think they miss the bigger picture.

Here's the opening paragraph:

Since the Wall Street crash in 2008 crippled the U.S. economy, Congress has played the role of a spectator at a big league baseball game – munching on popcorn and licking its greasy fingers soiled with corporate campaign loot – as the real players on the field, the Federal Reserve, controlled the action.

And the final paragraph:

It’s long past the time for Congress to wash off those greasy fingers and do its job.

But other than the washing of hands, there is no specific suggestion as to what should be done. The best I can suppose is that the article calls for a change of emphasis from monetary policy to fiscal. Yet as they point out

Since the crash, the Federal debt has doubled to $19.4 trillion

so I'm not sure what they have in mind.

Perhaps they are saying you can tell by current conditions that the doubling was clearly insufficient. Yeah. I think they mean the Federal debt has only doubled to $19.4 trillion, while the "balance sheet of the Fed has more than quadrupled". I guess they want the Federal debt to double again, to get it up in the quadruple range too.

But then, Scott Sumner would say you can tell by current conditions that the quadrupling of the Fed's balance sheet was clearly insufficient. So maybe people will soon be calling for an octupling of debt and balance sheets. And after that, a 16-tupling maybe.

Myself, I think fixing the economy requires a little more finesse of thought.

Wednesday, October 19, 2016

What if we tax corporate interest expense?

This is the effective corporate income tax rate:

Graph #1: Effective Corporate Income Tax Rate
We looked at it recently. The graph today shows annual (not quarterly) data.

This is the money corporations paid out as interest expense:

Graph #2: The Cost of Interest to Corporations
Interest is a tax deductible business expense. What if it wasn't? If interest wasn't tax deductible, the corporations would have to pay tax on the money they spend paying interest. How much would the tax have been? To find out, we can multiply the interest cost shown on Graph #2 by the tax rate shown on Graph #1:

Graph #3: Additional Tax Paid by Corporations if Interest Was Not Deductible
For the most recent year, the tax rate is a little over 25%, the interest expense is a little over $800 billion, and the tax on that amount comes to a little over $200 billion. Assuming that everything else stays the same.

What if we take this additional tax that corporations would have paid, and see what happens to the Federal deficits when the extra revenue is added in:

Graph #4: Actual Deficit (red) and Deficit Reduced by Taxing Interest Expense (blue)
Assuming that everything else stays the same, the Federal budget goes to surplus in the 1970s. It goes to surplus in the 1980s. It goes to surplus in the 1990s. It even goes to surplus in the 2000s.

Of course, everything else would not stay the same. Corporations would borrow less. Adjustments would have to be made. Perhaps there would be fewer mergers and acquisitions. Perhaps policy would be forced to shift away from the reliance on credit.

I can't tell you specifically what would change. I can tell you, though, that there would be less debt, and less credit use. And I can tell you that our economy can function on less credit. There was far less credit in use in the 1960s, for example, than there is today. And the economy was good.

Tuesday, October 18, 2016

The Corporate Tax Burden

What does everybody complain about all the time? Taxes.

This graph shows the corporate income tax, in red:

Graph #1: Corporate income tax in red, and corporate interest cost in blue.
Corporate income tax in red, and corporate interest cost in blue.

And what do they complain about? Taxes.

Monday, October 17, 2016

The Personal Income Tax

Back to SOI for more Statistics on Income.

Table 8: Personal Income per National Income and Product Accounts (NIPA), and Taxable Income and Individual Income Tax per Statistics of Income (SOI), 1950-2012.

The file is histab8.xls. It gives personal income, taxable income, and taxable income as a percent of personal income. It gives the total income tax in billions, and as a percent of personal income, and as a percent of taxable income.

I'm just looking for those last two.

Yesterday we looked at the corporate income tax as a percent of taxable corporate income (profits) and as a percent of gross corporate income. I want to do the same now for personal income.

Graph #1
The tax amounts to about 10% of gross personal income, or about 20% of taxable.

The personal tax is lower than the corporate tax, as a percent of taxable income. But the personal tax is much higher than the corporate as a percent of gross.

Graph #2
Now you know.

// The Excel file

Sunday, October 16, 2016

The Corporate Income Tax

Take the taxes paid on corporate income. Divide by corporate profits before tax. This gives a measure of the effective corporate income tax rate.

Graph #1: The Effective Corporate Income Tax Rate
This graph is comparable to the one at Wikipedia. Both show, for example, the rise during the first half of the 1980s and the fall around 2000.

The effective rate runs from a high around 50% in 1951 to a low around 25% today. You want to remember, though, that the corporate income tax is a tax on profits, not gross income. Corporate profits, essentially, are the part of gross income that is not spent. Corporations don't pay income tax on the income they spend. That's why businesses always collect receipts for their spending: They document that spending so they can subtract it from their taxable.

The corporate income tax only applies to corporate income that is not sunk back into the business. I'm probably making tax accounts' heads explode by saying this, because it's a crude generalization. But it gives you the idea.

The spending corporations do is about twice the size of GDP.

The gross income of U.S. corporations is the total of the income they spend plus the income they don't spend. We can estimate this gross income by taking GDP, multiplying by two, and adding corporate profits. Roughly, then, this graph shows taxes paid on corporate income as a percent of gross corporate income:

Graph #2: The Effective Income Tax Rate on Gross Corporate Income
Roughly, 1% of gross income since the 1980s.

Suppose we make it easier to compare Graphs #1 and #2 by putting the two lines together on one graph:

Graph #3: Corporate Income Tax as a Percent of Profit (blue) and Gross Income (red)
The red line shows the tax as a percent of gross corporate income. The blue line shows the tax as a percent of taxable corporate income.

Saturday, October 15, 2016

The extent of business "total receipts"

Note than in the data file I've been using they list both "total receipts" and "business receipts" for businesses. Categories of receipts. They also list different forms of business, including "all businesses" and "corporations".

I want to avoid confusion between "business receipts" of corporations and the receipts of "all businesses". I think it makes best sense to put the category of receipts first, and the form of business last. This is what I get:

  •  total receipts of all businesses
  •  business receipts of all businesses
  •  total receipts of corporations
  •  business receipts of corporations

Just to avoid confusion.

So anyway, I took "total receipts" for the two forms of business and put them together on a graph:

Graph #1
For corporations the 1980-2012 average is 1.9 times the size of GDP. For all businesses the average is 2.2 times GDP.

// The Excel file

Friday, October 14, 2016

Something I did not know

Stable at 90% thru 1995. Decline thereafter.

Something in the tax code?