Mankiw Makes the Case for McCain's Corporate Tax Cut

Josh Wright —  1 June 2008

The article is in the NY Times (HT: Mankiw).  An excerpt:

A cut in the corporate tax as Mr. McCain proposes would initially give a boost to after-tax profits and stock prices, but the results would not end there. A stronger stock market would lead to more capital investment. More investment would lead to greater productivity. Greater productivity would lead to higher wages for workers and lower prices for customers.

Populist critics deride this train of logic as “trickle-down economics.” But it is more accurate to call it textbook economics. Students in introductory economics courses learn that the burden of a tax does not necessarily stay where the Congress chooses to put it. That lesson is especially relevant when thinking about the corporate tax.

See also Luke Froeb on the gas tax holiday, which Mankiw describes as falling into the “almost laughable” category.

2 responses to Mankiw Makes the Case for McCain's Corporate Tax Cut

    Walt, Beecher, IL 3 June 2008 at 6:23 pm

    Gee, first a bad actor teaches us economics, then a spoiled brat basebal team owner, tells us what we didnt do right of the actor’s instructions, now Sen. McFlip-Flop McCain will teach what he would help us learn about economics, which he’ll never have a chance to do after he’s sent to the woodshed in Nov. by Dems.


    The (rhetorically) weak link in this argument is “More investment would lead to greater productivity.” Some people believe that incremental public investment in education, infrastructure, and health care by government would be worth at least as much as another WalMart or McDonalds. I wouldn’t make that argument (for public choice reasons), but some would.

    I have a more basic argument for lowering the corporate tax rate: We have no choice. We can’t have the highest corporate tax in the developed world and expect to remain competitive.