A Little Corporate Tax Wouldn't Hurt Anyone

Paul Krugman

Photo: NYtimes.com

Before the crisis, businesses were net borrowers, and to the extent that they preferred to rely on internal finance, anything that increased their profits might have led to at least some extra investment. Now, however, businesses are by and large taking in more in profits than they want to invest in expanding their businesses, so they’re lending out the excess, parking it in various securities. There’s absolutely no reason to believe that taxing their corporate jets would reduce investment, or that giving them a tax holiday on repatriated funds would increase investment.

Oh, about the banks: higher capital requirements or penalty charge would force them to shrink their balance sheets. But so what? With much of their balance sheet simply parked at the Fed, there’s no reason to believe that such a shrinkage would reduce lending to businesses (which aren’t much looking for loans anyway).Check out the data at The New York Times.

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