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...and there are sensible thinkers like Treasury secretary Henry Paulson. DeLong lashes out with a purely political response when anyone dares to suggest the corporations should be taxed less (you know, those evil corporations owned by those evil capitalists). But Paulson actually thinks about it. From this morning's Wall Street Journal, an op-ed by Paulson:

Tax systems have one fundamental purpose -- to raise revenue -- and the best systems minimize the drag on the economy. Therefore, we should ask: For a given level of revenue, what business tax regime best promotes U.S. economic growth and creates jobs? At a time when markets change rapidly, requiring businesses to be ever more flexible and swift, they are burdened with a business tax code complicated by parochial political interests. Government should not pick economic winners or losers; the marketplace has proven itself more than able for that task.

Business tax policy levers, such as the corporate tax rate, depreciation rates and investor taxes, as well as the taxes levied on small businesses through the individual income tax, should strive towards a similar purpose: to encourage economic growth by reducing the tax burden on additional investments. Yet, the current tax code distorts capital flows, hurting productivity, job creation and our global competitiveness.

Take just a few examples. Taxes on capital income raise the price of future consumption and discourage saving and capital formation. Reduced capital formation gives labor less capital to work with and lowers labor productivity, reducing real wages and income.

Targeted provisions to encourage specific activity substantially narrow the tax base and thus, overall tax rates must be higher. And these provisions add complexity; some have estimated that businesses spend $40 billion annually on tax compliance costs -- $40 billion that could create jobs, provide greater employee benefits and generate economic growth. Even the opportunity for favorable tax treatment gives rise to corporate expenditures on lobbying, rather than on growth creation.

The current tax depreciation system does not treat investments uniformly; depreciation allowances vary without clear economic rationale. This can bias decision making and result in a direct misallocation of capital if firms make marginal investment choices based on taxation rather than innovation.

The double taxation of corporate profits distorts a number of economic decisions important to a healthy economy. The double tax combined with the interest tax deduction favors debt over equity financing. It may also discourage earnings distributions through dividends or share repurchases, confounding market signals of a company's financial health. The double tax, in effect, penalizes investment in the corporate form. This also may lead to misallocation of capital, by influencing investment among firms in the economy.

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