The pony in the pile of horse manure

The current system of taxing capital income, and especially corporate earnings paid out as dividends, is badly distortionary because some income is taxed twice, once to the corporation and again to the shareholder who receives the dividend check. The Bush Administration has proposed to change that, in a way that will lead to considerable income being taxed not at all, which will also have a distortionary effect and will also enrich tax lawyers, tax-shelter operators, and people who already have plenty of money, while making the budget deficit even worse, thus limiting our options for funding necessary public programs and putting upward pressure on interest rates. The main defender of the current proposal is CEA chair Glenn Hubbard.

Brad DeLong links to an essay by Len Berman of the Tax Policy Center showing that there’s a better way to eliminate the current distortion, one that would be less distorting and would also pay for itself. The author of the better proposal the Bush Administration rejected in favor of shoveling out more goodies to its donors: Glenn Hubbard.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: