Arnold Kling

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Arnold Kling, Great Questions of Economics
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You would never see it on the op-ed page of the New York Times, but there is a strong case to be made for abolishing the corporate income tax, as given by Web logger Megan McArdle. Among the points she makes are,

The Corporate Income Tax brought in $204.9 billion in 1998. My tax professor (a Democrat) estimated the cost of corporate compliance in that year to be $300 billion. That's just the direct cost -- what corporations paid tax lawyers and accountants.

Somebody ought to check that $300 billion estimate. If every fortune 500 company hires 100 tax attorneys and accountants at $100,000 each, that is only $5 billion. And if another one million corporations each pay an average of $100,000 a year in compliance costs, that is another $100 billion.

In any event the ratio of compliance costs to revenue is enormous. And beyond that, as McArdle points out, the distortions are very high.

Discussion Question. If the corporate income tax were abolished, would corporate-sponsored consumption (meals paid by corporations, and so forth) increase, decrease, or stay the same?

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