Do Tax Cuts Lead to Economic Growth?

[Torie]

One thing that is missing is time horizons. It may be that it takes time for rate changes to change behaviors. Sometimes it might even affect career planning over time, or the economic return of a college education. But my impression is that the empirical data supporting the theory that tax changes at marginal levels below 50% (putting aside capital gains), have a substantial impact on future economic growth is very sparse.

[Torie]

Your hypo   Franknburger does not entail the government taking half the risk because if there are losses and no future profits, you/the corporation eat all the losses - unless you can sell the tax loss carryforwards to a third party for cash one way or the other. The US tax code and ancillary regulations has about 100 pages dealing with this issue, mostly in the context of mergers.

[Torie]

Your hypo   Franknburger does not entail the government taking half the risk because if there are losses and no future profits, you/the corporation eat all the losses - unless you can sell the tax loss carryforwards to a third party for cash one way or the other. The US tax code and ancillary regulations has about 100 pages dealing with this issue, mostly in the context of mergers.

Your point is valid for a complete start-up, but not for a going concern that is already profitable (and be it only due to importing into the US, with the intention to shift some of the production there as well).

OK. You have profits from something else. I am not sure this is good policy by the way (the government, albeit even handedly - for once, subsidizing risk taking). I would be interested in a "dense" academic article on that point with real data, not just chat, if such a paper exists. Plus it creates an incentive for companies to become inefficient conglomerates - solely for tax reasons.

[Torie]

If taxable profits are calculated in a way that reflects really economic profits, then win or lose, it's tax neutral. If you artificially reduce taxable profits through accounting gimmicks (like accelerated depreciation), that loads the dice from an investment perspective. At the margin, it is a subsidy for investment. So, I'm hostile out of the gate, absent empirical data and more theory, that I don't possess at the moment.

[Torie]

It thus appears that you agree with me.