Do Corporate Tax Cuts Shift Supply Curve to the Right (i.e. increase aggregate supply)?

[team_PLEASE]

Pretty much what the title asks: do corporate tax cuts increase aggregate supply? In other words, is the supply curve shifted to the right?

I have seen this argument tossed around and am curious of its merit. If so, why specifically? If not, why not?

 

[usmbguest5318]

Do Corporate Tax Cuts Shift Supply Curve to the Right (i.e. increase aggregate supply)?

Assuming you mean corporate tax cuts such as those in provided in H.R.1-2018, no and maybe; however, that isn't absolute. Whether they do or don't depend on elasticity and a variety of other factors.

It's also important to note that aggregate supply and income tax cuts are macroeconomic elements; however, aggregate supply is merely the sum of all producers' supplied goods and services, thus it's inseparable from the supply at much lower levels -- industry, region and entity, for example. Shifts of the supply curve (save for the supply of money as provided by central banks) are microeconomic events.

• Supply Curve
• Effects of Cutting Tax Rates on AD and AS (Note: the discussion found at the link here presupposes that one accepts the premises and conclusions of supply-side economics rather than classical economics. )
• Khan Academy

Changes in ad valorem taxes can shift supply curves, but the extent to which they do so (the incidence of the tax) depends on the elasticity/inelasticity of the supply and demand curves for the supplied good/service.

I have seen this argument tossed around and am curious of its merit. If so, why specifically? If not, why not?

Google is your friend.


I know you want a cut-and-dried answer, but there isn't one. There is only a cut-and-dried answer for a given situation. To wit, you should spend some time researching the impact of income tax cuts in a strong economy. Careful research will show that supply-side economic models/theories make sense to implement in weak economies, whereas classical models/theories make sense in strong ones. That is why I provided above links for both economic models. One must understand both and know when and "how much" to apply either one at any given point in time. As I said, there isn't a simple answer.

 

[Dale Smith]

Do Corporate Tax Cuts Shift Supply Curve to the Right (i.e. increase aggregate supply)?

Assuming you mean corporate tax cuts such as those in provided in H.R.1-2018, no. Aggregate supply and such tax cuts are macroeconomic elements, and shifts of the supply curve (save for the supply of money as provided by central banks) are microeconomic events.

• Supply Curve

Changes in ad valorem taxes can shift supply curves, but the extent to which they do so (the incidence of the tax) depends on the elasticity/inelasticity of the supply and demand curves for the supplied good/service.

l


Where do central banks get "the money" to loan?????? Are you a proponent of a foreign owned central bank extending "credit" from an empty vault???????

 

[Toddsterpatriot]

Do Corporate Tax Cuts Shift Supply Curve to the Right (i.e. increase aggregate supply)?

Assuming you mean corporate tax cuts such as those in provided in H.R.1-2018, no. Aggregate supply and such tax cuts are macroeconomic elements, and shifts of the supply curve (save for the supply of money as provided by central banks) are microeconomic events.

• Supply Curve

Changes in ad valorem taxes can shift supply curves, but the extent to which they do so (the incidence of the tax) depends on the elasticity/inelasticity of the supply and demand curves for the supplied good/service.

l


Where do central banks get "the money" to loan?????? Are you a proponent of a foreign owned central bank extending "credit" from an empty vault???????

Where do central banks get "the money" to loan??????

Central banks can create money out of thin air.

Are you a proponent of a foreign owned central bank

The US government may seem distant from regular Americans, but they aren't foreign.

 

[antifa]

Do Corporate Tax Cuts Shift Supply Curve to the Right (i.e. increase aggregate supply)?

Assuming you mean corporate tax cuts such as those in provided in H.R.1-2018, no. Aggregate supply and such tax cuts are macroeconomic elements, and shifts of the supply curve (save for the supply of money as provided by central banks) are microeconomic events.

• Supply Curve

Changes in ad valorem taxes can shift supply curves, but the extent to which they do so (the incidence of the tax) depends on the elasticity/inelasticity of the supply and demand curves for the supplied good/service.

l


Where do central banks get "the money" to loan?????? Are you a proponent of a foreign owned central bank extending "credit" from an empty vault???????

The vault is not empty. It has a printing press backed by war and the petrodollar.

It was a pretty good question for a rookie.

 

[waltky]

Is prob'ly neutralized...

... by the pent-up demand...

... now released by increased spending.

 

[william the wie]

Do Corporate Tax Cuts Shift Supply Curve to the Right (i.e. increase aggregate supply)?

Assuming you mean corporate tax cuts such as those in provided in H.R.1-2018, no and maybe; however, that isn't absolute. Whether they do or don't depend on elasticity and a variety of other factors.

It's also important to note that aggregate supply and income tax cuts are macroeconomic elements; however, aggregate supply is merely the sum of all producers' supplied goods and services, thus it's inseparable from the supply at much lower levels -- industry, region and entity, for example. Shifts of the supply curve (save for the supply of money as provided by central banks) are microeconomic events.

• Supply Curve
• Effects of Cutting Tax Rates on AD and AS (Note: the discussion found at the link here presupposes that one accepts the premises and conclusions of supply-side economics rather than classical economics. )
• Khan Academy

Changes in ad valorem taxes can shift supply curves, but the extent to which they do so (the incidence of the tax) depends on the elasticity/inelasticity of the supply and demand curves for the supplied good/service.

I have seen this argument tossed around and am curious of its merit. If so, why specifically? If not, why not?

Google is your friend.


I know you want a cut-and-dried answer, but there isn't one. There is only a cut-and-dried answer for a given situation. To wit, you should spend some time researching the impact of income tax cuts in a strong economy. Careful research will show that supply-side economic models/theories make sense to implement in weak economies, whereas classical models/theories make sense in strong ones. That is why I provided above links for both economic models. One must understand both and know when and "how much" to apply either one at any given point in time. As I said, there isn't a simple answer.

Do Corporate Tax Cuts Shift Supply Curve to the Right (i.e. increase aggregate supply)?

Assuming you mean corporate tax cuts such as those in provided in H.R.1-2018, no and maybe; however, that isn't absolute. Whether they do or don't depend on elasticity and a variety of other factors.

It's also important to note that aggregate supply and income tax cuts are macroeconomic elements; however, aggregate supply is merely the sum of all producers' supplied goods and services, thus it's inseparable from the supply at much lower levels -- industry, region and entity, for example. Shifts of the supply curve (save for the supply of money as provided by central banks) are microeconomic events.

• Supply Curve
• Effects of Cutting Tax Rates on AD and AS (Note: the discussion found at the link here presupposes that one accepts the premises and conclusions of supply-side economics rather than classical economics. )
• Khan Academy

Changes in ad valorem taxes can shift supply curves, but the extent to which they do so (the incidence of the tax) depends on the elasticity/inelasticity of the supply and demand curves for the supplied good/service.

I have seen this argument tossed around and am curious of its merit. If so, why specifically? If not, why not?

Google is your friend.


I know you want a cut-and-dried answer, but there isn't one. There is only a cut-and-dried answer for a given situation. To wit, you should spend some time researching the impact of income tax cuts in a strong economy. Careful research will show that supply-side economic models/theories make sense to implement in weak economies, whereas classical models/theories make sense in strong ones. That is why I provided above links for both economic models. One must understand both and know when and "how much" to apply either one at any given point in time. As I said, there isn't a simple answer.

Do Corporate Tax Cuts Shift Supply Curve to the Right (i.e. increase aggregate supply)?

Assuming you mean corporate tax cuts such as those in provided in H.R.1-2018, no and maybe; however, that isn't absolute. Whether they do or don't depend on elasticity and a variety of other factors.

It's also important to note that aggregate supply and income tax cuts are macroeconomic elements; however, aggregate supply is merely the sum of all producers' supplied goods and services, thus it's inseparable from the supply at much lower levels -- industry, region and entity, for example. Shifts of the supply curve (save for the supply of money as provided by central banks) are microeconomic events.

• Supply Curve
• Effects of Cutting Tax Rates on AD and AS (Note: the discussion found at the link here presupposes that one accepts the premises and conclusions of supply-side economics rather than classical economics. )
• Khan Academy

Changes in ad valorem taxes can shift supply curves, but the extent to which they do so (the incidence of the tax) depends on the elasticity/inelasticity of the supply and demand curves for the supplied good/service.

I have seen this argument tossed around and am curious of its merit. If so, why specifically? If not, why not?

Google is your friend.


I know you want a cut-and-dried answer, but there isn't one. There is only a cut-and-dried answer for a given situation. To wit, you should spend some time researching the impact of income tax cuts in a strong economy. Careful research will show that supply-side economic models/theories make sense to implement in weak economies, whereas classical models/theories make sense in strong ones. That is why I provided above links for both economic models. One must understand both and know when and "how much" to apply either one at any given point in time. As I said, there isn't a simple answer.

The migration incentive is the major factor to consider as an engine of economic growth:

An actual revenue tariff is the only way to make the bill WTO compliant that will give US subsidiaries of foreign companies much larger sales than the parent company in China, Japan and the EU.

The limits to SALT and mortgage deductibility means that Austin will become the new silicon valley especially for foreign subsidiaries because tax costs will be only @ 81% of San Jose at worst. Since SALT has the same effects as a VAT on supply and distribution channels with knock on effects my guess is that the cost differential might become big enough to replace silicon valley in less than a year. My assumption there is that CA will raise state and local taxes to make up for loss of tax base.

 

[team_PLEASE]

Careful research will show that supply-side economic models/theories make sense to implement in weak economies, whereas classical models/theories make sense in strong ones. That is why I provided above links for both economic models. One must understand both and know when and "how much" to apply either one at any given point in time. As I said, there isn't a simple answer.

I thought demand-side policies were beneficial in a recession; isn't this the basis behind Keynesian economics?

Changes in ad valorem taxes can shift supply curves, but the extent to which they do so (the incidence of the tax) depends on the elasticity/inelasticity of the supply and demand curves for the supplied good/service.

You specifically mention ad valorem taxes: does a corporate income tax fall under this branch even though the tax isn't for a specific transaction?

Also, you make a good point IMO when you mention that the decision to reduce prices largely depends on the elasticity of demand. Is there any reason to believe that on a broad scale (if we include the demand of all products), the elasticity of demand across those products is such that a corporate tax cut WILL make price reductions worth it (i.e. will a net price reduction across all goods occur because of this corporate tax cut)? The reason I ask this is because I've seen it argued that: corporate tax cut --> price reductions for various goods --> greater demand for those various goods at lower prices --> increased production --> increased wages/jobs. Does this argument make sense? Will an increase in production necessarily result in an increase in wages, or will it just be jobs? Moreover, will the price reductions result in a net increase in production in the country (across all goods)? Will there be enough price reductions? How can one analyze this?

I'm sure it depends on which specific company/good is being referenced, but I wonder if, from an overall perspective, production in the country will be increased in order to meet the (potentially) increased demand resulting from price reductions. Is there any way to analyze this?

(If you need me to clarify my questions in the above paragraphs, don't hesitate to ask. Reading over this again, I don't think I explained my question very well at all. Sorry!)

 

[usmbguest5318]

Careful research will show that supply-side economic models/theories make sense to implement in weak economies, whereas classical models/theories make sense in strong ones. That is why I provided above links for both economic models. One must understand both and know when and "how much" to apply either one at any given point in time. As I said, there isn't a simple answer.

I thought demand-side policies were beneficial in a recession; isn't this the basis behind Keynesian economics?

Changes in ad valorem taxes can shift supply curves, but the extent to which they do so (the incidence of the tax) depends on the elasticity/inelasticity of the supply and demand curves for the supplied good/service.

You specifically mention ad valorem taxes: does a corporate income tax fall under this branch even though the tax isn't for a specific transaction?

Also, you make a good point IMO when you mention that the decision to reduce prices largely depends on the elasticity of demand. Is there any reason to believe that on a broad scale (if we include the demand of all products), the elasticity of demand across those products is such that a corporate tax cut WILL make price reductions worth it (i.e. will a net price reduction across all goods occur because of this corporate tax cut)? The reason I ask this is because I've seen it argued that: corporate tax cut --> price reductions for various goods --> greater demand for those various goods at lower prices --> increased production --> increased wages/jobs. Does this argument make sense? Will an increase in production necessarily result in an increase in wages, or will it just be jobs? Moreover, will the price reductions result in a net increase in production in the country (across all goods)? Will there be enough price reductions? How can one analyze this?

I'm sure it depends on which specific company/good is being referenced, but I wonder if, from an overall perspective, production in the country will be increased in order to meet the (potentially) increased demand resulting from price reductions. Is there any way to analyze this?

(If you need me to clarify my questions in the above paragraphs, don't hesitate to ask. Reading over this again, I don't think I explained my question very well at all. Sorry!)

I thought demand-side policies were beneficial in a recession; isn't this the basis behind Keynesian economics?

What you're referring to is the "goosing" of the economy as a whole. That is something that is appropriate to do when the economy is weak. There are multiple economic approaches to doing so. One way is Keynesian way, which essentially calls for the government to demand tons and tons of goods and services, that is to say spend money on the country, al la the New Deal. The other way is to provide stimulus via tax cuts and tax preferences.

The Keynesian approach works in weak and strong economic periods; however, using it in a strong economy accelerates inflation. It works in any period in the economic cycle because the spending creates jobs throughout the economy. The supply side approach works in weak economy and not in a strong economy. It has the potential also to advance the inflation rate; however, the weakness of the economy tends to keep inflation in check. The supply side approach doesn't work in strong economies because the people and organizations that create jobs are already flush with cash they don't know what to do with other than invest it to allow it to compound.

You specifically mention ad valorem taxes: does a corporate income tax fall under this branch even though the tax isn't for a specific transaction?

No.

Technically, ad valorem taxes are different from transaction and transfer taxes, but not so much so that most folks don't just lump the three general classes together because they are assessed in proportion to the value of a piece of property, be it personal or real. Income taxes are quite different.

• What Ad Valorem Taxes Are, and Why They Matter to You
  
• Types of Taxes

Is there any reason to believe that on a broad scale (if we include the demand of all products), the elasticity of demand across those products is such that a corporate tax cut WILL make price reductions worth it (i.e. will a net price reduction across all goods occur because of this corporate tax cut)? I ask this is because I've seen it argued that: corporate tax cut --> price reductions for various goods --> greater demand for those various goods at lower prices --> increased production --> increased wages/jobs. Does this argument make sense?

In a weak (receding) enough economy, yes, it's reasonable to expect that suppliers who can do so (i.e., lowering their price still provides a profit) will lower their prices if the alternative is to make no sales at all. When the economy (or even an industry) is going strong, buyers face what is called a "seller's market." Sellers don't lower their prices when the market favors them with an abundance of potential customers who have the means to pay the seller's asking price.

I'm glad you asked that question because allows me to reiterate the central point of earlier comments. Policymakers, if they are doing their jobs well, choose near-term fiscal policies, policies like income tax provisions, to implement based on an economy's status, both current and foreseeable in the short term. For the most part, they don't need to go so far as "New Deal" type policies because, in the U.S. and most other Western nations, the federal government always has some measure of Keynesian spending in place. Believe it or not, for instance, we haven't spent enough money to maintain roads and other infrastructure in "tip top" running order in part because were the federal government to spend the money to do so, it'd create inflationary pressure on the economy.

The short is that literally everything -- both the good and the bad -- about economic policy and approaches to "goosing" the economy is tolerable and not in and of themselves good or bad things. The key question that one must aptly answer is not what to do, because what approaches exist is well understood. The question is when should "such and such" an approach and its downsides (because they all downsides) be tolerated. That too is well understood, but unfortunately, people construe and address economic matters as though they're political, be it in and of themselves or as tools for achieving some tangential political end, and when they do we get things like corporate tax cuts that boost the deficit when the economy is strong.

What should be happening now is allocating money to reduce the national debt/deficit, not increase it. Debt and deficits should be increased when the economy is weak and the federal government is the only (or among the few) that has billions to spend to kick-start a recovery. (Look at what CEOs have said they'll do with their tax cut savings. You'll find a large share of them are going to pay down their debt. Duh. Would that their doing so would reduce the national debt.)

Will an increase in production necessarily result in an increase in wages, or will it just be jobs?

Overall, yes, because increases in production are necessarily increases in the demand for labor. As the labor supply shrinks (i.e., unemployment decreases), buyers of labor must pay more for it. Labor is no different than any other good or service in terms of how its prices rise/fall in accordance with the laws of supply and demand.

Though labor rates will increase overall, they won't increase in industries wherein firms determine that the cost of labor is higher than the cost of capital. For example, if the supply of qualified workers that fast food restaurants seek decreases enough that it's more economical for, say, McDonald's, to purchase order taking machines than it is to employ human workers, McDonald's will buy the machines instead of labor.

Ages ago, that would not have happened because there was no substitute for labor. Today, however, there is a substitute for labor. Consequently, if workers demand a wage that is high enough that the cost of a labor substitute that exists is more, well, economical, firm will simply reduce the size of its workforce and implement technology where it is less costly than is labor.

I'm sure it depends on which specific company/good is being referenced

All of what I've discussed above have differing degrees of implications for different industries within an economy and for different firms within and across industries; however, all of the concepts I've mentioned thus far apply to some degree to every industry, person and firm in the economy.

If you need me to clarify my questions in the above paragraphs, don't hesitate to ask. Reading over this again, I don't think I explained my question very well at all. Sorry!

Well, I think I understood your questions. If you find the answers I've given don't answer what you thought was the question you were asking, then, yes, you'll need to clarify something(s).