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The unintended consequences of the Dayton tax plan

While job growth and fairness are two key policy goals of Gov. Mark Dayton, his tax proposal hurts the job prospects of the very people he intends to help without ever creating a "fairer" distribution of income.

Dayton's budget solution increases state income taxes on high-income taxpayers making $150,000 or more in taxable income ($250,000 for married couples).

According to mainstream economic thought, the trouble with raising state tax rates on a narrow tax base springs from the incentives higher tax rates create for taxpayers to avoid additional tax payments.

Taxpayers can avoid state income taxes through tax shelters, working less, making fewer taxable investments, or by moving to a lower tax state. Each tax avoidance avenue, in its own way, makes it harder for poor and middle class workers to find well-paying jobs in Minnesota.

Shelters divert resources to less efficient uses
Tax shelters are techniques employed to reduce taxable income. They pose the more straightforward jobs problem. Taxable income tends to spring from productive economic activity that creates value and jobs. Tax shelters divert resources from more productive, job-creating activities to less efficient uses.

Consider a wealthy widow collecting interest from a Minnesota bank. Her deposit is an important source of cash for business loans. Under Dayton's plan, the state income tax rate on her interest would increase from 7.85 percent to 10.95 percent. She could avoid the Minnesota income tax completely by moving her savings out of the Minnesota bank into untaxed Treasuries or municipal bonds.

A large body of research confirms that individual taxpayers do indeed reduce their taxable income in response to tax hikes.

Raising income tax rates also reduces the rewards to entrepreneurial risk-taking. As a result, entrepreneurs work less and invest less in job creating ventures.

In a study of the effect of the federal 1986 tax reform on sole proprietors' hiring and wage-setting decisions, economists Robert Carrol, Douglas Holtz-Eakin, Mark Rider, and Harvey S. Rosen found that "individual income taxes exert a substantial influence on the probability that an entrepreneur hires workers." Moreover, the same economists find that "lower taxes also raise the total wage payments to those workers."

The mobility issue
Dayton contends that his income tax hike would only affect the wealthiest 2 percent of Minnesotans. The mainstream public finance consensus beginning with liberal Harvard economist Richard Musgrave says the pain of this state tax hike would ultimately fall on poor and middle-class Minnesotans because highly skilled workers can avoid the tax by moving. Musgrave supported progressive federal income taxes versus attempting redistribution at the state level because of mobility.

According to University of Kentucky economist David Wildasin, if "the rich are mobile, it simply may not be possible for any one state to impose a net burden on its rich residents; the attempt to do so could be worse than self-defeating because it drives out resources — the skills of the high-income households — that help to raise the productivity of low-income residents."

Even a passing familiarity with Minnesota's research scientists, engineers, executives, or even our professional athletes shows Minnesota must attract high-skilled individuals from around the nation and even the world in order to compete effectively.

Employers can overcome an unattractive aspect of a job by paying what economists call a "compensating wage premium," such as higher wages for working the night shift.

Competition in the national labor market would force Minnesota employers to raise pre-tax wages for high-income workers to compensate them for Dayton's unfavorable income tax rates.

Less cash to pay the less mobile workers
The need to raise wages for high-income earners will damage the labor market for poor and middle-class workers. Most directly, more cash going to pay mobile high-income earners means less cash available to pay less mobile lower-income workers. In addition, companies will hire fewer high-income and high-skilled workers who, as Wildasin notes above, raise the productivity of low-income workers.

Notably, those high-income earners not hired will take their productivity and skill to other states. Thus, high-income earner would never actually be burdened by Dayton's higher taxes, as they'll either command higher wages in Minnesota or make equal after-tax wages elsewhere.
Research by Harvard economist Martin Feldstein and Marian Wrobel confirms that attempts to make state taxes relatively more progressive than other states only work to damage a state's labor market without increasing the economic burden on its high-income taxpayers.

There is, in fact, agreement among economists on the best way to use the Minnesota tax code to promote growth. Economist Marsha Blumenthal sums up the "consensus position of economists" in a recent paper for the local left-of-center think tank Growth & Justice: "Make the base as broad as possible so as to keep the marginal rates as low as possible."

As budget negotiations progress, we hope that Dayton will gain a better appreciation for this consensus view.

Peter J. Nelson is a policy fellow at Center of the American Experiment. John A. Spry is an associate professor in the department of finance at the University of St. Thomas.

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Comments (36)

Our authors seem to think that the people who founded Microsoft, Google, 3M, FaceBook, etc were thinking of tax rates as they proceeded. Or would have made sure they moved to Mississippi before they incorporated.

Oh my goodness! I might have to pay $1,000 more per year in taxes. I had better uproot my family, sell my house, quit my job and move to Texas!

Your argument is facile Randian claptrap, not a consensus view. People are more human than you give them credit for.

Will the rich try to shelter their income from taxes should income taxes go up? Yes, quite likely, but guess what? They're already doing that. That's why the rate they pay now in Minnesota is effectively lower than those who earn less.

Anyways, I know it's an opinion piece, but I can't help but feel that the arguments it's presenting are a bit one-sided.

While it is true that a select few wealthy people will move around because of the tax burden, the evidence seems to overwhelmingly show that tax levels play a very minor role in where the rich choose to live and continue to stay. When states such as California and New Jersey have raised taxes on the wealthy in the past, there has been relatively little impact on inflow and outflow of millionaires in their state.

The rich have jobs, family, houses, friends, and children in school, just like the rest of us. These are the sorts of things that tie people to a community, and keep them from just pulling up their stakes and moving out. It's a myth that they are thinking to themselves, "well, my two children are in the middle of their school year, I'm licensed for my job in the state of Minnesota, and my extended family all lives here... but my tax rate just went up 2%, so by golly family, pack up -- we're moving out!"

Furthermore, the rich, surprise surprise, have more important considerations when it comes to choosing where to live than the tax burden of living there. Just like us plebeians, they like living in nice places. Beautiful weather, healthy environment, smooth roads, excellent schools, delicious food, lively arts and theatre community, etc., are all important considerations when it comes to choosing where to put down roots. When the wealthy start stampeding from New York City and California in order to live in Alaska, Nevada, and Mississippi, I'll start believing that taxes are what drive their behavior. Until then, I really don't think this article's representations are likely to come true.

As a co-author of the Blumenthal paper cited here, I must add some context. While we agree that taxes influence behavior, the paper also describes how the impact is often overstated. And, that focusing on taxes without taking into account the way money is spent can provide a false picture of the net impacts.

The problems with theoretical examples like these here show up when they are tested a little further.

Take the poor rich widow with her savings in a bank account. First, retirees tend to behave more conservatively and make different choices (moving, for example) than people earning income from work.

At today's bank interest rates, she'd have a hard time earning poverty wages on a million dollars in bank deposits. The actual proposed tax increase amounts to 3.1% on the amount she earns above the top rate, so she is hardly hurting.

It's likely she moved her big deposits long ago.

Mobility is another issue that shows up more in conservative talking points than in hard data. Professional athletes, for example, pay state income taxes where they play games, not based on where they live.

Until the tax cutters also talk about impact of spending, take their points with a tablespoon of salt.

The tax increases Dayton is proposing are not generally high enough to justify the cost of many of the techniques the writers discuss. And the techniques likes tax shelters often don't apply to personal income taxes.

The mobility of high income workers is something of a myth. With current high unemployment rates, there just aren't a lot of great jobs around right now, and people who have them won't give them up easily. And if they did, they know they would quickly be replaced.

Let's also bear in mind that mostly what Dayton is proposing are tax increases on personal income. Such increases have no impact at all on corporate decision making.

These arguments about the behavior of the wealthy threatening to move...failing to invest if taxed more...and making critical business decisions primarily on taxation are so old, so tiresome, so discredited that I am amazed they are still expounded. But what else would we expect from the Center of the American Experiment?

What is frightening is that there are still so many ardent supporters under the influence of a "corporatist" America. From the devestation of the Citizens United case in the electoral process, to the army of corporate lobbyists with their mega-dollars to influence legislation, to the strident voices on the right in the media -- I fear America is now headed down a slippery slope too steep to turn around. Scary!

I'll second what April (#3) says, and only hope to expand on her excellent rebuttal by adding just a few words.

One of the Dakotas (or maybe even both, I forget) has NO income tax whatsoever. And yet, millionaires are not leaving the Twin Cities and heading west to put down roots on the prairies there.

Why not?

Oh, I can think of a few reasons:

The Minnesota Opera
The Guthrie Theatre
MSP International Film Festival
MSP International Airport
The Target Center
Target Field
The Minneapolis Aquatennial
The Walker Art Center
The Minneapolis Institute of Arts
The Children's Theater
Et cetera...

Oh, and there were plenty of economists 10-15 years ago who told us that if we cut taxes for the rich that would actually *increase* the money that governments would take in. You know, because these good folks -- the entrepreneurs discussed by Messrs. Nelson and Spry -- would become virtual fountains of employment, spewing out jobs right and left.

Well, a decade later, with unemployment at nearly 10% and both state and federal governments bleeding red ink, I guess all you economists might want to rethink *that* theory, eh?

But I do enjoy reading about economic theories ... so keep 'em coming, guys! It's one of the few entertainments I can afford right now. Besides, I'm too old to enjoy fairy tales. Or maybe it's just that I don't believe in them any more.

I agree with #3 above. Those likely to pursue all the strategies Msrs. King and Spry are seeking to caution us against are ALREADY pursuing such strategies.

One of the principal reasons the economy is so slow to recover and that this recovery is largely "jobless" is BECAUSE those who have long been absorbing far more than their share of the proceeds of everyone else's labor into their own coffers have been pursuing those self-destructive and other-destructive strategies,...

Despite the promises of "conservative" experts that if we allowed them to take all the money they would make the rest of us and our entire economy fabulously prosperous, history (and reality) have proven the opposite to be the case.

What the authors ignore is that many of our state's most "conservative" wealthy citizens suffer from a psychological dysfunction which leaves them incapable of truly experiencing a sense of safety and satisfaction, no matter HOW wealthy they become.

Even when they have it all (mostly having rearranged the state economy and tax structures to enable them to extract that "all" from other people and to keep "all" of it),...

They STILL feel like needy victims who don't have anywhere near enough.

They love, to the point of worship, Ayn Rand because, she tells them that their dysfunctions make them heroic and it is everyone else who is defective.

If some of those most dysfonic wealthy folks see fit to leave the state as the result of a tax increase, we will be a far more prosperous, far healthier, far more psychologically healthy state because of their departure.

Following the logic of these two pundits the tax rate for the wealthy should descend to zero. Ultimately one person will have all the money and will somehow stimulate jobs for all.

The one point I may accept in their analysis is that the hidey-holes for money, tax shelters, are the warrens that need to be raided.

Jeff Wilfahrt, Rosemount, MN

You know there is trouble when the authors take pains to describe their sources as "mainstream" and "consensus." Why not just use "fair and balanced?" After looking at a couple of the articles, I don't blame the sources for this dishonest excuse for commentary because the findings and conclusions are being misrepresented. The most obvious example is Marsha Blumenthal, who I expect would not agree at all with the conclusions in this article, and whose cited point is taken out of context. She wrote a 2009 paper actually addressing this very issue, and concludes that while raising top rates will cause some tax avoidance and some economic loss, that loss is more than offset by the economic impact of corresponding spending cuts that can be avoided.

The reality of the situation is that raising the top tax rate will cause a small number of people to leave and/or otherwise divert or hide their income, but it will still raise significant additional revenue and will not hurt (and will ultimately help by avoiding public employee job loss) the state's economy.

Seems to be a lot of rhetorical foot-stomping in this comment thread.

The key point of this piece is that there are behavior consequences to tax policy. At the margins, at some level of taxation, we all take steps to minimize taxes. Some take drastic steps -- uproot and leave the state; others smaller steps.

I have H&R Block do my taxes for about $350 bucks (lots of forms). Saves me time, frustration more than tax dollars. For me, I get good value for my money and $350 in the grand scope of the economy is no big deal. But ...

H&R Block Revenues are about $10 billion annually. That's $10 billion that but for the complexity of the tax code would be spent or invested on goods and services people want and need more than 30 pages of tax documents with no value other than telling the government how much you owe them. That "excess burden" drains resources from the economy, even if my nobody misses my $350.

Multiply that effect by all of the similar government-driven activity from a barber apply for a license to cut hair to the massive GE tax department it takes to get the company's tax rate to zero, and you start to understand the point of the article.

Think of it this way: If LeBron James and I play one-on-one he's going to beat me 21-0. Put 10lb weights on his ankles and he's still going to beat me 21-0, but it's ridiculous on its face to say that adding the weight didn't hurt James' performance. High taxes narrowly targeted always hurt the economy, even if other factors mitigate the effects -- even if the economy actually improves.

(re#5 -- Florida Marlin Carlos Delgado had a tax clause in his contract that if he were traded to a team in a high tax state, the new team would have to make up the net difference in his salary. When he was traded to the NY Mets, the Mets had to increase his salary between $300K and $400K. That cost ultimately is passed on to Mets fans and lower salaries for other players/employees in the organization. It is money for which the Mets got no additional value, because they were paying a higher than the market rate for Delgado. The Mets didn't pick up and move to Bismark, but the tax implications of Delgado's contract still had a negative effect on the team, it's fans, and the larger economy in general.)

I just returned from Orono and the place is a freakin' ghost town! Tumble weeds blowing across the weedy lawns returning to prairie, weeds growing in the empty swimming pools - what happened?

A real estate agent in Guccis held together with duct tape told me the billionaires had all moved to Hattiesburg and Mobile. In fact, that happened in the 1950's when marginal tax rates were much higher and the Lake Minnetonka towns have been in decline ever since.

Then I woke up.

@#10: avoiding public employee job loss, that is the loss of non-essential state employees, hurts the economy. What is overlooked is that resources that would have gone to support non-essential state employees remains in the private sector to fund jobs that provide goods and services people actually want and need. It creates wealth; unnecessary gov't jobs consume wealth.

These are conservative talking points, not arguments, and they have been thoroughly debunked repeatedly in the recent past. Nice cherry-picking, Mr Nelson, but that, along with misrepresenting the analyses of others, is intellectually dishonest.

How exactly do you slide over the fact that the theories you espouse have been tried for 30 years (from Saint Reagan to TP) and have not worked? If cutting taxes really leads to full employment, we should be there by now. Wages have been stagnant over that same period while the rich have become fabulously richer.

These are things we can see with our own eyes. Why do you think an ideological commentary makes that all go away?

I will also agree with and commend April(#3) for her thoughtful and reasoned comments on this article. Lacking her patience and understanding, I'll go with Myles and just call it old and tiresome.

Craig, professional athletes and overpaid executives are hardly great examples of extra money paid that doesn't produce additional results.

The hurt is overstated across the board, especially compared to the dollars invested and spent overseas for cheap labor and goods.

The stuff about marginal tax rates; I think you will find that the impact of them on decisions to leave the state is what economists call inelastic, just not that sensitive to changes.

Here's the money paragraph from a current study published in the National Tax Journal that directly investigated "millionaire migration" in New Jersey and found little efffect:

These empirical approaches tacitly assume — but do not demonstrate — the causal pathway of a migration response to taxes. Given the centrality of migration in the theory, much more compelling tests can be achieved by directly investigating tax-induced migration. As Day and Winer emphasize, migration “cannot be taken for granted” in economic theories (2006, p. 536). Likewise, Mirrlees argued that while “high tax rates encourage emigration,” it is “the propensity to migrate” that determines how the incentive is transformed into actual behavior (Mirrlees, 1982, pp. 319, 323). Feldstein and Wrobel (1998), using instrumental variables, find that wages seem to adjust as if migration were occurring. But this does not demonstrate that people do actually migrate in response to taxes. Thus, empirical evidence of migration is key — and conceptually foundational — to testing the constraints that state governments face in utilizing progressive income taxes. Most importantly, there is virtually no research on the “propensity to migrate” among wealthy individuals.4 This study fills a salient gap by examining how an increase in state income tax progressivity produces changes in the migration patterns of very high-income earners (the top 1 percent and the top 0.1 percent).

The one good thing that came out of this editorial is that I now know to take everything from the University of St. Thomas Department of Finance with a grain of salt, just as I have known with the CAE for some time.

I think it's quite telling that a co-author (see #3) of one of the studies cited by Messrs. Nelson and Spry has come by this comment section and scolded them for taking his work out of context and selectively omitting extremely relevant facts.

To Joel. I will tell you where they are. They mostly moved to Souix Falls SD to avoid these obscene, onerous, disgusting Minnesota taxes. I have heard there are massive mansions there replete with huge pools and stunning gardens. They say the Guccis have been replaced by Red Wing boots.

They save huge amounts, not only from taxes, but also because there is no where interesting to spend their new found riches.

It is curious though that Minnesota still has its 20 Fortune 500 companies. South Dakota has......

Are these wealthy nomads happier? I have not heard. But they are richer! That's what counts.

Joining the Blame Bush crowd: The fiscal mess we are in now clearly relates to GW's trillion dollar tax CUT and his multi-trillion dollar idiotic invasion of Iraq. Eliminate those two acts, and Obama would have inherited almost as good a fiscal situation as Bush got when he took over Bill Clinton's surpluses.

Craig, I have to also say that I find it downright funny that the basis for your fact-free right-wing talking points argument here is a fact-free right-wing talking points article that you wrote previously. Craig Westover's source is Craig Westover. Who could argue with that? Nice work!

I see that our author's Center for the American Experiment is featuring articles by that economic genius, Katherine Kersten. They have such catchy titles as
"The Obama economy is a disaster" and "Republicans are the ones with a sensible budget plan"

Enough said.

Mr. Spicer: Can we see these "massive mansions" in Souix Falls SD (sic)? It doesn't sound like you've actually been to Sioux Falls, South Dakota. I have, and while there are some nice houses there, it isn't exactly Jackson Hole, and Sioux Falls isn't going showing a massive increase in population anytime soon (nor is the state of SoDak, despite those radio ads).

Frankly, if all the kajillionaires want to move to SoDak, NoDak or other low-tax prairie outposts, I say let 'em. I'll take 100 families making $75K per year over one guy worth $10 million. Those families will contribute more to our economy, make our state a better place to live, and be more a part of our community than any millionaire. That $10 million guy (or the $100 million guy, or the billionaire) is spending and investing most of his money far away from Minnesota, so what little we get in taxes from him (assuming he doesn't spend some of that money on fancy lawyers and tax accountants to help him avoid taxes altogether) really isn't doing that much - those of us who pay our full ride without avoiding taxes are covering most of it.

Reading this article gave me the "aches"--head, stomach, heart. But reading the Comment section made me all well again. Thank you, thoughtful readers of MinnPost. You don't let the Righties get away with their fantasies--OK, dare I say "lies"?

Tax systems based on consumption are more stable.

Tax systems that rely on taxing the income of very high earners leads to lots of volatility and instability. Because the income of high earners tend to fluctuate a great deal from year to year. This type of system is not going to be very stable in the long run.

We've had a tax reform commission in 1987 that stated the same thing. Governor Pawlenty had one that reported back a few years ago that said many of these same things. Yet they just get ignored. the political process hears this and says fine, and then goes back to our "kitchen table" economics

Can we please notice that #12 and #21 are both dripping with sarcasm (if I'm not mistaken).

The fight seems to be over the short term and not the long term. Our state demographics tell us that we have a aging population problem and all it's associated healthcare costs. If the governor and legislative leaders took a longer view at the states structural deficit. It would perhaps allow them to deal with the near term much more realistically.

Greg, I for one was amused by both #12 and #21. We need a little humor, even if it drips.

It is unfortunate the many of the comments on this column have not made any specific mention of the economic literature cited.

Almost all the negative comments are already addressed in the papers and economic literature cited with links. Minnesota would have a better, more reasoned public debate if people read the evidence instead of ignoring the articles in the Journal of Economic Literature, Journal of Labor Economics, Journal of Public Economics, ect.

I would urge readers to actually follow the links and read these articles. Readers of the comments can make their own observations about whether comments seem to be the result of a deep knowledge of the relevant economic literature or something else.

Additional evidence is available through the following sources:

1) Evidence about the effects of tax rates on investment is reviewed in a largely, non-technically manner by Dr. Jim Poterba, President of the National Bureau of Economic Research and MIT economist:

"Andrew Samwick and I also develop new empirical evidence on how the tax code affects the structure of household portfolios, and in particular the likelihood that a household will own a particular asset. We use data from the 1998 Survey of Consumer Finances, and we focus on the decision to invest in broad asset categories such as taxable equity, taxable bonds, tax-exempt bonds, and equity mutual funds. Our findings suggest that income tax rates are significant determinants of household portfolio decisions. Those with higher marginal tax rates are more likely to hold tax-exempt assets, either by investing in tax-exempt bonds or by channeling a high fraction of assets into tax-deferred accounts."

(Source: )

2) Additional evidence about the effects of high state tax rates on increasing pre-tax gross wages of highly skilled workers is available in the journal Contemporary Economic Policy, from Professor Justin Ross of Indiana University and Professor Robert Dunn of West Virginia University:

“This paper examines the responsiveness of the rich to state income taxes. We use Major League Baseball free agents who were named All-Stars at some point in their career and who signed with a U.S. team for the 1991 through 2002 seasons. This data set overcomes some of the previous difficulties encountered in similar studies but also has limitations representing the general rich population. We find evidence that the wages of this subset of players do adjust to offset the burden of state income taxes, specifically a 1% decrease in net-of-tax rate leads to a 3.3% increase in salary.”

(Source: )

3) Former Obama and Clinton Economic Advisor and current Harvard Professor Larry Summers and University of Michigan Professor James Hines, write in Tax Policy and the Economy. As a center-left economist Summers acknowledges the problems with taxing income in today’s global and increasingly mobile economy. He hints that progressives may want to use international agreements to set tax policy internationally in the future in order to have higher tax rates on income precisely because mobility limits the ability of nations to use high progressive income taxes. You do not have to agree with all of Summer’s policy prescriptions to acknowledge the mountain of evidence about the increasingly competitive global economy contained in his article with Professor Hines. Here are some key parts, of a useful paper:

“Efforts to tax mobile economic activity stimulate mobility and thereby create economic distortions as business activities, capital, and labor are reallocated for tax rather than productivity reasons. Sophisticated tax avoidance through financial and other means reduces the revenue potential of high rates of income taxation and further contributes to the economic cost of taxation. Taxes on capital income distort the intertemporal allocation of consumption due to the compounding of effective tax rates over time. And redistributive taxation that subjects income to high marginal rates of effective taxation creates its own economic distortions…
The international evidence indicates that governments of countries with smaller and more open economies rely less on personal and corporate income taxes, and more on expenditure and trade taxes, than other governments do. Doubtless this reflects many aspects of their economic and political situations, including that properly designed expenditure type taxes (though typically not trade taxes) can create fewer economic distortions than many income taxes. The United States currently taxes personal and corporate income at high rates compared to other countries, particularly given the relatively small size of the U.S. public sector. As the world economy becomes more integrated, the cost of this type of income taxation will grow relative to the cost of expenditure tax alternatives...
Governments that are concerned about growing income inequality and that feel pressured to move their tax systems more strongly in the direction of expenditure taxation therefore can be expected to look for progressive alternatives to standard policy choices. Such alternatives may include progressive forms of expenditure taxation and expenditure policies, such as education and training programs, that support income creation by less affluent members of the population.
The fiscal challenges facing governments in the era of globalization are unlikely to be addressed with single answers such as expanded education programs, but instead strategies that include broad ranges of government policy initiatives. International agreements have the potential to play significant roles in these strategies. It is already the case that governments cooperate in international settings such as the World Trade Organization to promote international trade and investment, and bilateral and multilateral tax agreements and initiatives serve the function of facilitating tax enforcement and avoidance of double taxation of international income.

(Source: )

There is agreement among economists with the three major points Professor Marsha Blumenthal makes in her concluding paragraph, cited in full below:

“Taking the caveats into account brings us close to the standard, long-held consensus position of economists on how states should set taxes: Make the tax base as broad as possible so as to keep the marginal rates as low as possible. Most important, as Reed and Rogers conclude, state-level tax and expenditure debates should be about the relative merits of public and private spending and not the impact of these policies on short-run aggregate economic activity.”

1) Empirical economic research of the effects of state policies using aggregate state level data has several technical challenges. I believe, that because of these challenges, we should not only look at data with only 50 observations at the aggregate state level, but also individual data on individual tax returns or the behavior of individual families and businesses. Peter Nelson and I cite evidence from research looking at thousands of individuals and how they respond to changes in tax rates. Increasing the number of observations, and using quasi-natural experiments like the 1986 Tax Reform’s act reduction in the federal marginal tax rate from 50 percent to 28 percent are good statistical methods.

2) Tax “bases should be as broad as possible to keep the marginal rates as low as possible.”

You can watch Federal Reserve Chairman Ben Bernanke explain that this view is a point of agreement among most economists: "Lower rates and broader bases is a something,
that most economists would agree is a good direction to go in the tax code."

Ben Bernanke, at 1:12.

Source:( )

3) We should have a polite and reasonable debate about the marginal benefits of public expenditures versus the marginal costs of the taxes necessary to fund those expenditures from the private sector. This is a long-run debate about the costs and benefits of many different public expenditures programs through direct appropriations and tax expenditures. State and local governments are not able to conduct Keynesian policy. They face balanced budget requirements and do not have their own central bank. The debate about Keynesian fiscal policy is at the national level. States should follow sound long-term policies, as they are not able to affect the short run business cycle.

Unfortunately, there’s no evidence that the 2003 tax cut did anything to stimulate corporate investment. Indeed, according to the Federal Reserve, non-financial corporations have increased their holdings of liquid assets to $1.8 trillion from $1.2 trillion since 2003. Thus it’s implausible that a further reduction in the corporate rate, as Pawlenty and other Republicans favor, would do much to raise investment.

What is holding back business investment is not taxes, but poor economic prospects. For some time, members of the National Federation of Independent Business have listed “poor sales” as their number one problem. Businesses are not going to invest, no matter how low the tax rate is, if there is no demand for their output.

Brevity is the soul of wit.

"Lower rates and broader bases is a something,
that most economists would agree is a good direction to go in the tax code."

Those $5 million/year pro athletes love this concept. Tax all those McDonald's workers so I can keep plenty.