Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press.

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According to an article in Sunday's paper, employers are now able to find the workers they need by going to cities with large amounts of unemployment or underemployment.

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Readers may have missed this fact, but this is what the NYT said in an article on the prospect for tax reform when it told readers:

"Democrats have also been deeply skeptical of the Trump administration’s plans to repeal the estate tax, which it has said has been harmful to family farmers."

If the Trump administration has been saying the estate tax has been harmful to family farmers it is lying since virtually no family farmers will owe a penny as a result of the estate tax. This would be known to NYT since the paper ran a piece 16 years ago which noted that the American Farm Bureau Federation, a strong opponent of the estate tax, could not identify a single person who had lost a family farm as a result of the estate tax.

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The NYT had a piece on prices being charged by drug companies for new types of treatment for cancer, which can run as high as $1 million a year. While the piece noted the argument of one industry critic, Dr. Aaron Kesselheim, that we don't pay firefighters when they show up at a fire or based on how many lives they save, it didn't carry through the logic of this point.

The alternative implied by Dr. Kesselheim's remark is that we could pay for the research upfront, as we already do to some extent with funding for the National Institutes of Health and the Orphan Drug Tax Credit. If the government paid for research upfront, then in nearly all cases the price of treatment would be trivial, since the cost of manufacturing and delivering the drug is rarely very high. It would have been worth presenting this alternative more clearly in the piece.

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C. Adam Bee and Joshua Mitchell, two economists at the Census Bureau, recently released an analysis of retirement income that qualitatively changes our understanding of the well-being of retirees. The analysis matched administrative data (essentially tax filings) with the reported income in the Current Population Survey (CPS), which has been the standard basis for the measurement of household income, including retirement income.

Bee and Mitchell found that the income of households in the administrative data was substantially higher than what was reported in the CPS. The overall median for households over age 65 in the administrative data was $44,371 in 2012 (the year that was the basis of their analysis), 30.4 percent higher than the $34,037 reported in the CPS for the same households. Their analysis found sharply higher incomes at all points along the income distribution than what was reported in the CPS. They also show a corresponding reduction in poverty rates among older households.

This is good and important news. While there is much room for additional analysis based on the Bee and Mitchell findings, there are two points that jump out. First, defined benefit (DB) pensions have been more effective in supporting retirement incomes than we had realized. This is good news. The second point is not good. There is nothing in the Bee and Mitchell analysis that suggests we had been overly pessimistic about the extent to which defined contribution (DC) pensions will provide adequate income to future retirees.

On the first point, by far the largest single source of the gap between the income as measured in the administrative data and income as measured in the CPS is uncounted income from DB pensions. This is due to both the fact that many people who receive a DB benefit do not report it on the CPS and also that many people who do receive a DB benefit under-report the amount.[1] Bee and Mitchell find that DB pensions make a large contribution to the income of older households for the 3rd decile and above in the income distribution. Their results are shown in the table below.



Administrative Data


CPS Data


Income Decile































































































Source: Bee and Mitchell 2017, Table 9.

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If you thought the pharmaceutical industry couldn't possibly sink any lower in its pursuit of profits, Allergan just proved you wrong. The geniuses at Allergan came up with the brilliant idea of turning over one of its patents on the dry-eye drug Restasis to the Mohawk tribe. The tribe will then lease the patent back to the Allergan.

The reason for this silly trick is that the Mohawk tribe, based on its sovereign status, is disputing the right of generic competitors to pursue a case before the Patent Trial and Appeal Board. This board is supposed to determine whether a patent was appropriately granted in the first place.

The article may have left readers confused about the issues involved when it reported without comment a statement by Allergan's lawyer, which claimed that they were trying to avoid double jeopardy since the company also faces a case in federal court. The additional background here is that there is an enormous asymmetry in legal cases involving patents. The patent holder is fighting for the right to sell a drug in a monopoly market, which means monopoly profits. The challenger(s) is fighting for the right to be able to sell the drug in a competitive market, which means normal profits.

In this context, the patent holder has an enormous incentive to delay and run up the cost of litigation, which may quickly prove unprofitable to the generic competitor. The Patent Trial and Appeal Board was created to allow a quicker lower cost process to challenge invalid patents. It is also worth noting that Allergan's revenue on this drug (more than $1.3 billion annually, according to the article) can be thought of as a tax on the American public. Without this patent, the drug would likely sell for 20 percent or less of its patent-protected price.

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Okay, they haven't written anything about too many iPhones that I know of, but the paper continually displays its irrational fear of too much government borrowing. It did so yet again in a discussion of plans to temporarily raise the debt ceiling and possibly to get rid of it altogether. The piece presents the views of the Peter Peterson-funded Committee for a Responsible Federal Budget that the country faces a serious debt and deficit problem.

The evidence of a problem with debt and deficits would be high interest rates and/or inflation. In fact, interest rates remain extraordinarily low, as does the inflation rate, which has been persistently below the Federal Reserve Board's target of a 2.0 percent average inflation rate. The debt is not even a serious measure of generational balance as it is often used. The austerity that has resulted from concerns over the debt has cost us tens of trillions of dollars of future output, making our children and grandchildren far poorer than if we had pursued sound macroeconomic policies in the years following the Great Recession.

It would be helpful if the Washington Post had economics-based discussions of debts and deficits rather than hyping the irrational fears promoted by a Wall Street billionaire.

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The New York Times told readers this morning that the European Central Bank (ECB) would like to cut back on its quantitative easing program but is reluctant to do so because of the weak dollar. The piece notes that a weak dollar reduces the euro zone's trade surplus with the United States. Also by making low-cost imports available, it undermines the ECB's effort to raise inflation to its 2.0 percent target.

The piece explains the weak dollar:

"There’s not much Mr. Draghi can do about the weak dollar, which analysts say reflects pessimism about the ability of President Trump and Congress to agree on legislation that many economists believe would help goose growth in the United States, such as infrastructure programs or corporate tax reform.

"'Investors no longer trust the American government to push through tax reform and fiscal stimulus,' Alwin Schenk, a portfolio manager at the German bank Sal. Oppenheim, said in a note to clients.

"The dollar’s decline is also an expression of the nervousness investors feel about geopolitics, primarily nuclear saber-rattling by North Korea and bellicose rhetoric from Mr. Trump. The euro is seen as a safe haven from the turmoil."

This would be a compelling story except for the fact that the dollar is actually quite high relative to euro, as can be seen.


The real value of the dollar measured against the euro is well below its average since its creation. It is more than 15 percent below the peaks hit in the middle of the last decade. While the dollar is down from its value last year, this follows a long period in which its value increased by more than 20 percent in value against the euro. (The chart shows the value of the euro, so a drop means a rise in the value of the dollar.) The complaint about a low dollar is especially bizarre since the United States has a trade deficit and the euro zone has a trade surplus.

Hopefully, this confusion about the value of the dollar stems from the NYT's reporting and does not represent the actual thinking at the ECB.

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In listing bad things that Donald Trump is doing for the economy, Washington Post business reporter Heather Long included his threat to end the trade deal with South Korea. The piece noted that U.S. beef exports to South Korea topped $1 billion last year. While this is intended to be a big deal, it is not clear that it is.

This amount is roughly 1.5 percent of total beef production. More importantly, it is wrong to imply that this output would just sit and rot if the trade deal were cancelled. While South Korea might reduce its imports of beef from the United States, it is unlikely they would go to zero even if the deal was cancelled. If the U.S. is the lowest cost provider of beef to South Korea, the government would effectively be punishing its own people by denying access to U.S. beef. Democratically elected governments usually don't think it's good politics to punish their people.

The other point is that insofar as U.S. beef exports to South Korea are replaced by another supplier, it will be opening up a new potential market for the United States. For example, if Brazil, the world's #2 beef producer, began exporting another $500 million in beef to South Korea, by diverting exports that had previously gone to other countries, then these other countries would offer a new potential market to the United States.

It will be the case that the result of Trump cancelling the trade deal will be somewhat lower U.S. beef exports, resulting in beef producers getting slightly lower prices in the United States, but the idea that this would be some sort of catastrophe for them does not make sense. (FWIW, I think it is a bad idea to pull out of the trade deal.)

The piece also attributes the fall in the stock market yesterday to the uncertainties created by Trump's threats on the trade deal, ending DACA, and the risks of war with North Korea. While this is possible, it is also possible that investors are getting concerned that they will not see the promised tax cuts as the recovery from Harvey just increases the congressional agenda for the fall. It is also possible that the fall had nothing to do with anything, which is often the case with stock market fluctuations.



I forgot to add that if the prices received by domestic beef producers falls, this means lower prices to consumers in the United States, which will free up more money to spend on other items. This effect will almost certainly be trivial, but that's because the impact of any changes in exports is likely to be trivial, in spite of the claims of highly paid lobbyists and the promoters of these trade deals in the media.

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Just in case you were wondering how big a deal this is for the budget. Put another way, it is equal to about $25 for every person in the country. It might have been helpful to include such information in this NYT piece given the paper's commitment to putting numbers in context.

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That seems to be the argument by Rana Foroohar in a Financial Times column (sorry, behind paywall). The argument is that because recent changes to the patent law have made it easier to challenge inappropriately granted patents, inventors are unable to benefit from their inventions. She argues that this is causing companies to shift their research to other countries where their patents enjoy more protection.

There are two problems with this story. The first is that the United States has a notoriously lax patent system. In 1999, a patent was granted for a peanut butter and jelly sandwich. Unlike many countries, the United States does not allow pre-patent challenges from other parties. While recent reforms have made it easier for competitors to challenge a patent, the system in the U.S. is almost certainly still more patent-friendly than in almost any other country.

However, the more important point is that there is no connection between the strength of patent protection and where research is conducted. Under a wide variety of treaty commitments, the United States and other major countries are prohibited from discriminating in patent issuance and enforcement based on the country in which the research was conducted. This means that, contrary to the claim in the column, a lessening of patent strength in the United States would provide absolutely zero incentive for a company to shift its research to Europe or China.

If the people running the company are familiar with arithmetic, they would do their research in the low-cost country regardless of its level of patent enforcement. In other words, there could be reasons to worry about our patent laws not sufficiently protecting innovation (unlikely), but the threat of moving research is not one of them.



jconroy4989 points out in his comment that as of September 2012 there has been a mechanism, "pre-issuance patent submissions" through which third parties can submit information arguing against the granting of a patent. In this way, the United States was getting more in line with most other countries which had long allowed for pre-issuance challenges.

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An NYT article, headlined "Minnesota finds way to slow soaring health premiums," reported on how the state is now paying insurers $270 million in each of the next two years to keep down the cost of premiums in the health care exchanges. It may not have been entirely clear from reading the piece that the reduction in premiums is the result of a state subsidy of $1,700 per patient per year.

Thanks to Robert Salzberg for calling this to my attention.

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The average hourly wage has risen by 2.5 percent in the last year. We have that on pretty good data from Bureau of Labor Statistics. That's okay in a context of inflation around 1.7 percent (it translates into 0.8 percent real wage growth) but hardly great. It is not keeping pace with trend productivity growth and is not allowing much catch-up from the bad years in the Great Recession and the immediate aftermath. It also indicates no acceleration from the last two years in spite of unemployment rates that are below the level at which point most economists expect wages to be accelerating.

There have been several efforts to pump up this number to make things look better. Robert Samuelson tells us about one, a study by the San Francisco Fed that shows the median wages of full-time workers who have stayed with the same employer for the last year has risen by 4.0 percent over the last year. While Samuelson (whose piece mistakenly links to this AEI publication rather than the San Francisco Fed paper) tell us that this gap is due to retiring baby boomers being replaced by lower paid younger workers, the study shows that only around 0.5 percentage points of this gap can be explained by retirements.

Furthermore, the study indicates that this effect depressed wages by around 0.2 percentage points in the years 2002–2007, so increasing retirements can only explain about 0.3 percentage points of the slowdown in wage growth compared to the first half of the last decade. The retirement of the baby boomers offers no help on the issue of wage growth not accelerating in the last year since the study indicates it has been somewhat less of a factor in this period than in 2015.

It is also worth recognizing what a narrow group of workers this is describing. These are workers who have been employed full-time by the same employer for at least a year. More than 27 million workers are presently employed part-time (22 plus million choose to work part-time). More than 5 million workers lose or leave their job every month. So this growth figure refers to a relatively privileged segment of the workforce. It is also a figure that includes a tenure and experience premium since by definition these workers have a year's more experience in 2017 than they did in 2016.

It's nice to see that Samuelson can cherry pick data to find groups that appear to be doing somewhat better than average, but this is not a way to seriously assess conditions in the labor market.

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This is an important point that Neil Irwin slips up on in an otherwise excellent piece on the growing practice of outsourcing among major corporations. The piece contrasts the experience of Gail Evans, a black woman working as a custodian for Eastman Kodak in the 1980s, with the experience of Marta Ramos, a Hispanic woman who is currently employed doing custodial work at Apple's headquarters. While the woman working at Kodak was actually an employee of Kodak, the woman working at Apple is employed by a company that contracts with Apple.

Irwin notes the growing practice of outsourcing many tasks and in the third paragraph writes:

"The approach has made companies more nimble and more productive, and delivered huge profits for shareholders."

As the piece subsequently explains, it is not at all clear that this outsourcing of jobs had made companies more productive. It has almost certainly made them more profitable since there is considerable evidence that workers employed by contractors are paid less than they would be if employed by the parent organization. But this is just shifting the location of a relatively low productivity job from the company to the contractor, it does nothing to increase economy wide productivity.

In fact, from an economy wide perspective, it may well do the opposite. As the piece points out, Kodak employees enjoyed considerable job security. If there was no need for their work in one part of the company, it would look to transfer them to another part where they could be used. This meant that the company was effectively preventing workers from suffering unemployment and turning to government services during a downturn or shift in demand.

The piece also describes how Kodak created an internal job ladder through which Ms. Evans was able to rise into managerial and eventually executive positions. There are no comparable job ladders for Ms. Ramos. This also shifts a responsibility from the company to the government. While Kodak was prepared to devote resources towards training and developing the skills of its lower level employees, Apple is leaving this to the government. This may improve Apple's profitability, but there is no reason to believe that this shift in responsibility leads to any productivity gains for the economy as a whole.

Essentially Apple and other leading tech companies have profited in part from being able to shift to the government responsibilities to workers that major companies had carried themselves in prior decades. This is to a large extent the point of Irwin's piece, but it is important to be careful about wording. There is no evidence that this shift has led to any gains in productivity, even if it has increased profits at a small number of giant firms.

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It must be great to be able to read people's minds. Most of us lack that ability, but thankfully the Washington Post was able to find a reporter who could tell us Emmanuel Macron's motives in moving to weaken France's labor laws in a way that gives businesses more power and workers less. Those of us who lack mind reading ability might have thought that Macron was motivated by a desire to give businesses more power and workers less. After all, he is a wealthy person who made a fortune in investment banking. He also won without much support from France's labor unions.

But the Post can tell us Macron's true motives:

" stimulate economic growth and lower unemployment, now over 9 percent."

This is especially not obvious since the most effective way to boost growth and reduce unemployment would be to increase spending, something that Macron is not planning to do. It is far from obvious that the labor market reforms described in this piece will have the effect of boosting growth and lowering unemployment, so it seems that Macron is badly confused.

The piece also makes many assertions that are wrong or misleading. It tells readers in the second sentence:

"Find one of those golden tickets and you basically cannot be fired, even if you stop performing."

This is a Washington Post invention, like the claim that Mexico's GDP quadrupled between 1987 and 2007 due to NAFTA (the actual growth figure was 83 percent, according to the I.M.F.). It is simply not true, employers absolutely can fire workers in France if they can show they are not doing their jobs.

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Donald Trump can boast at least a little bit about the return of manufacturing jobs during his presidency. Employment in the sector is up by 125,000 since January. It's not exactly a boom, after all, we are still down by almost 1.3 million jobs from the pre-recession level and 4.8 million from where we were in 2000, but at least it is movement in a positive direction.

In an NYT Upshot piece, Neil Irwin sorts out the reasons for this modest uptick in manufacturing jobs. He points to a small increase in oil prices and a drop in the dollar, both of which are likely factors. (He also points to weak growth in government employment. I'm not sure how that matters here.)

However, Irwin left out what might be the most important reason for the increase in manufacturing jobs: weak productivity growth. According to the Bureau of Labor Statistics, output in manufacturing has increased at 2.0 percent annual rate in the first half of 2017. This would mean that if we had a modest 2.0 percent rate of increase in productivity in the sector (manufacturing productivity usually grows faster than the rest of the economy), we would have no need for more labor, and presumably no new jobs.

But now America is great again, manufacturing productivity has slowed to a crawl, increasing at just a 1.4 percent annual rate in the first half of the year. So, there we have it, extraordinarily weak productivity has translated into 125,000 new manufacturing jobs under President Trump.

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Washington Post columnist Thomas Heath discussed a plan being considered by Republicans to end the tax deductibility of contributions to IRAs and 401(k)s. Under the proposal, the contributions would be subject to taxes, but all withdrawals would be tax free. This would in effect make all retirement accounts like Roth IRAs, which many people now contribute to voluntarily.

Incredibly, Heath did not make the obvious point, this change doesn't actually save the government any money, it just changes the timing of tax collections. The government will collect more tax revenue now, as people place money into retirement accounts, but less money in the future when people are pulling the money out.

Mandating this change is a cheap trick that only makes sense as a way to hide the cost of a tax cut. This would have been worth pointing out to readers who might otherwise think that this switch serves a real purpose.

In discussing the debate over IRAs and 401(k)s as policy, it would have also been worth mentioning the argument of critics that they rip people off. The actual cost for the financial industry of maintaining and IRA or 401(k) is very low. (Vanguard doesn't charge anything, getting its costs covered by the fees on individual funds.) Nonetheless, the average fee for an account (on top of the cost of individual funds) is close to 1.0 percent annually, with many companies charging more than 1.5 percent.

This means that someone with $120,000 in an IRA is paying $1,200 to a bank or insurance company each year for nothing. This is a great welfare program for the financial industry, but it is a needless tax on savings. These fees can be reduced with better regulation. Also, states like California, Oregon, and Illinois are making their government-run programs for public employees, which have much lower fees, available to workers in the private sector.

The Trump administration has attempted to block these state programs and efforts at better regulation. It argues that people in the financial industry are too incompetent to make an honest living so that they need the government to stack the rules in their favor so that can get the six and seven figure salaries they have come to expect.

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As a result of the fact that he vacations at Mar-a-Lago and his New Jersey golf club, demands protection for his adult children, and had his wife and youngest son stay in New York for the first five months of his presidency, Donald Trump has added $120 million to the annual cost of providing protection for the president compared with what a normal president would require. The New York Times reported that he pledged to contribute 0.8 percent of this amount ($1 million) to help the victims of Hurricane Harvey. If he follows through on this pledge, it means the public will only be down $119.0 million ($119.4 million, after taking account of the tax deduction).

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One of the ways in which the government pays for things it wants done is to grant patent and copyright monopolies. This is not a statement about the merits of patents and copyrights as mechanisms for financing research and creative work; it is a definition. The government grants these monopolies to allow companies to charge prices that are far above the free market price as a reward for its past innovation or creative work.

In this way, patent or copyright monopoly can be thought as being like a privately imposed tax. If a drug company like Gilead Sciences can charge $84,000 for a Sovaldi, when the free market price would be something like $300, it has the same effect on the public as if the government imposed a tax of 28,000 percent on Sovaldi. It is the same amount of money out of people's pockets.

We can argue about the merits of patent and copyright monopolies (see chapter 5 in Rigged [it's free]), but the fact that they are alternative mechanisms that the government uses to finance research and creative work is not an arguable point. If we spent another $400 billion a year on research (roughly 20 percent of annual income tax collections), this would show up in the deficit and add to the debt. Yet somehow we are supposed to not pay attention when the government grants patents and copyrights that add hundreds of billions of dollars to what we pay for drugs, medical equipment, software and other protected items. (By my calculation, drug patents and related protections add close to $400 billion to what we spend each year on prescription drugs alone.)

This obvious point is missing from almost all the whining about the debt and deficit (see here for today's example). The additional costs the public pays for items as a result of granting patent and copyright monopolies are never mentioned as burdens imposed on future generations. Somehow, we are not supposed to be concerned about making our kids pay huge amounts of money to Pfizer and Microsoft, it's only a burden when the money has to be paid to the government.

That might fly as cheap political rhetoric, but it doesn't make sense. And the people who talk about debts and deficits without mentioning patent monopolies deserve only ridicule, they should not be taken seriously. 

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Fans of economic policy are used to the old "night is day," "down is up," approach to economic policy. After all, much of the media are worried about robots taking all the jobs even as the data from the Bureau of Labor Statistics show that productivity growth (the rate at which robots are taking jobs) is at a record slow pace.

That's why it is hardly surprising to hear the argument being taken seriously that reducing corporate taxes will lead to more investment and thereby greater wage growth in the future. The data from the last seventy years show there is no relationship between aggregate profits and investment.


As can be seen, there is no evidence that higher corporate profits are associated with an increase in investment. In fact, the peak investment share of GDP was reached in the early 1980s when the after-tax profit share was near its post war low. Investment hit a second peak in 2000, even as the profit share was falling through the second half of the decade. The profit share rose sharply in the 2000s, even as the investment share stagnated. In short, you need a pretty good imagination to look at this data and think that increasing after-tax profits will somehow cause firms to invest more.

Having said this, there is a good argument for reforming the tax code in a way the reduces the opportunities for gaming. The tax avoidance industry is both an enormous waste and an important source of inequality. The resources spent on avoiding taxes, in the form of lawyers, accountants, and corporate engineering, are a complete waste from an economic standpoint. Also running tax avoidance scams allows some people to get very rich. The private equity industry is to a large extent a tax avoidance scam.

So it would be a big gain for the country if the tax code could be restructured in a way that eliminates most of the opportunities for gaming. As I have written before, my preferred approach is requiring companies to turn over a percentage of their stock in the form of non-voting shares, which would be treated exactly like voting shares in terms of dividends and buybacks. This would make it impossible for companies to cheat the government unless it was also cheating its stockholders.

Anyhow, that my preferred route, but it's probably too simple to get anywhere.

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I may have missed it, but the coverage of Dara Khosrowshahi's pick to be the CEO of Uber seemed to leave out the fact that he is a board member of the New York Times. This would seem to be a point worth mentioning in his profiles. It's also an item that we would especially expect to see in NYT pieces on Mr. Khosrowshahi.

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The NYT had a piece on efforts to reduce loopholes to ensure the government actually collects in taxes something close to the targeted rate. The piece likely left readers with the belief that it was not possible to establish such a system.

Actually, it is not hard. If the government required companies to turn over a percentage of its stock in the form of non-voting shares, which are treated exactly like voting shares in terms of dividends and buybacks, it would be impossible for companies to cheat the government unless it was also cheating its stockholders. This means that if the targeted tax rate is 25 percent, companies turn over an amount of shares equal to 25 percent of the total. If the company pays a $2 dividend to its other shares, it also pays a $2 dividend to the government. If it buys back 10 percent of its shares at $100 each, it also buys back 10 percent of the government's shares at $100 each.

Anyhow, we could construct this sort of share system to ensure the government gets its share of corporate profits, but it's probably too simple for policy types to understand.



An important point that is often missed in this debate is that the tax avoidance industry is both an enormous waste and an important source of inequality. The resources spent on avoiding taxes, in the form of lawyers, accountants, and corporate engineering, are a complete waste from an economic standpoint. Also, running tax avoidance scams allows some people to get very rich. The private equity industry is to a large extent a tax avoidance scam. It has produced some of the very richest people in the country. For this reason, a reform to the tax code that substantially reduced the opportunities for gaming would be a big gain from a progressive perspective even if led to a small loss of tax revenue from the corporate sector.

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