Thursday, March 22, 2012

Taxation —> innovation

Yglesias makes a good point, apropos of why Apple's not using its billions to create Bell Labs 2.0:
Something else to note is that in Bell Labs' postwar heyday the marginal income tax rate was extremely high. If you're a corporate executive and you know that 90% of any additional income that you pay yourself is going to go to the federal government, suddenly using the corporate account to buy yourself fun new toys instead looks like an appealing alternative. And what could be more fun than a giant wacky research lab!
So instead you sit on your loot and wait for a Republican Congress to cut the tax rate.


  1. Anderson, that's true. But it was also a different world. It was much harder to move money back then. And of course, it isn't just "gadgets" that get bought. It's ultra-expensive first class airline seats. Employees stay in $1,000 per night hotel rooms. And so on. Far better to let money flow where it wants to flow. If the gadgets are worth investing in, people will invest. In fact, I think the gadgets we use today are pretty darn amazing.

    Of course, I still have two or three Bell Labs science kits that were given to me by a Southern Bell exec who was a family friend after I impressed her with a high-school science project. Maybe I'll convince one of my kids to actually do one of the projects. They actually require quite a bit of work.

  2. I think that Matt's point is that money does not, by nature, "flow where it wants to," at least in a world where taxation is part of nature.

    A high marginal rate (and it doesn't have to be 90%) tells a company, hey, *spend* your money or else the feds will spend it *for* you. That has obvious plusses for keeping the economy happy.

    N.b. that I am open to abolishing the corporate income tax, as simply too hard to administer, if the lost revenue is made up elsewhere (higher marginal rates perhaps). But I would have to have some real economists talk about the unintended downsides first.

  3. As you know, I favor a very low wealth tax over high income taxes. I don't see why a wealth tax can't be applied to corporations, and applied in such a way that overseas holdings are subject to the tax.

    I think Matt has a lot of novel ideas, but I just think his support of ultra-high taxes is ill-advised. For one thing, it certainly reduces the willingness of the public to invest in corporations, since it makes it virtually impossible for them to make a decent profit.

    And again, high taxes causes more than just investment spending. Everybody starts flying first class because the government is picking up most of the tab. Everybody eats at nicer restaurants because they are getting a huge discount based on the tax code. Certainly this is spending, and sometimes justified, but society is better off when business people fly second class and eat at Olive Garden and pass on the money to the investing public, who are then free to reinvest or spend the money.