The Concise Encyclopedia of Economics
FEATURED ARTICLE

Taxation

Joseph J. Minarik

In recent years, taxation has been one of the most prominent and controversial topics in economic policy. Taxation has been a principal issue in every presidential election since 1980--with a large tax cut as a winning issue in 1980, a pledge of "Read my lips: no new taxes" in the 1988 campaign, and a statement that "It's your money" providing an enduring image of the 2000 campaign. Taxation was also the subject of major, and largely inconsistent, policy changes. It remains a source of ongoing debate....

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FEATURED ARTICLE

Corporate Taxation

Rob Norton

The corporate income tax is the most poorly understood of all the major methods by which the U.S. government collects money. Most economists concluded long ago that it is among the least efficient and least defensible taxes. Although they have trouble agreeing on--much less measuring with any precision--who actually bears the burden of the corporate income tax, economists agree that it causes significant distortions in economic behavior. The tax is popular with the person in the street, who believes, incorrectly, that it is paid by corporations. Owners and managers of corporations often assume, just as incorrectly, that the tax is simply passed along to consumers. This very vagueness about who pays the tax accounts for its continued popularity among politicians.

The federal corporate income tax differs from the individual income tax in two major ways. First, it is a tax not on gross income but on net income, or profits, with permissible deductions for most costs of doing business. Second, it applies only to businesses that are chartered as corporations--not to partnerships or sole proprietorships....

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ALSO OF INTEREST

Environmental Quality

Terry L. Anderson

Pollution Controls

Robert W. Crandall

Health Insurance

John C. Goodman

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FEATURED BIOGRAPHY

Kenneth Arrow

(1921-2017)

In 1972 American economist Kenneth Arrow, jointly with Sir John Hicks, was awarded the Nobel Prize in economics for "pioneering contributions to general equilibrium theory and welfare theory." Arrow is probably best known for his Ph.D. dissertation (on which his book Social Choice and Individual Values is based), in which he proved his famous "impossibility theorem." He showed that under certain assumptions about people's preferences between options, it is always impossible to find a voting rule under which one option emerges as the most preferred. The simplest example is Condorcet's paradox, named after an eighteenth-century French mathematician. Condorcet's paradox is as follows: There are three candidates for office; let us call them Bush (B), Clinton (C), and Perot (P). One-third of the voters rank them B, C, P. One-third rank them C, P, B. The final third rank them P, B, C. Then a majority will prefer Bush to Clinton, and a majority will prefer Clinton to Perot. It would seem, therefore, that a majority would prefer Bush to Perot. But in fact a majority prefers Perot to Bush. Arrow's more complicated proof is more general.... READ MORE

FEATURED ARTICLE

Taxation

Joseph J. Minarik

In recent years, taxation has been one of the most prominent and controversial topics in economic policy. Taxation has been a principal issue in every presidential election since 1980--with a large tax cut as a winning issue in 1980, a pledge of "Read my lips: no new taxes" in the 1988 campaign, and a statement that "It's your money" providing an enduring image of the 2000 campaign. Taxation was also the subject of major, and largely inconsistent, policy changes. It remains a source of ongoing debate....

READ MORE