Paul Krugman's book "Arguing with Zombies: Economics, Politics, and the Fight for a Better Future" challenges the existing paradigm of low tax theory in business investment by debunking the idea that corporations primarily use tax cuts to expand capacity and add jobs. He argues that business decisions are less sensitive to tax rates than proponents of the low tax theory claim. Instead, business investment is driven more by market demand perceptions. He also suggests that a significant portion of corporate profits are rewards to monopoly power rather than returns on investment, making a tax cut more of a giveaway than a reason to invest.

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Arguing with Zombies: Economics, Politics, and the Fight for a Better Future

“Zombie ideas” simply refuse to die despite mountains of evidence to disprove them. How do you fight them? Paul Krugman, Nobel Prize winner in Economi...

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Corporations primarily use tax cuts to buy back their stock instead of adding jobs and expanding capacity. This is because business decisions are a lot less sensitive to tax rates than what the proponents of the low tax theory claim. Business investment is instead driven by perception about the market demand. Not many potential business investments are worth doing at a 21% profit tax that was not worth doing at the previous 35% rate. A substantial portion of corporate profits represents rewards to monopoly power instead of returns on investment, making a tax cut more of a giveaway than a reason to invest.

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The book "Arguing with Zombies" suggests that corporate tax cuts do not necessarily lead to job creation or capacity expansion. Instead, businesses often use these cuts to buy back their stock. The book argues that business decisions are less sensitive to tax rates and more driven by market demand perceptions. Therefore, entrepreneurs or managers should not rely solely on tax cuts for business investments. Instead, they should focus on understanding market demand and making investment decisions accordingly. Furthermore, the book suggests that a significant portion of corporate profits are rewards to monopoly power, not returns on investment, making tax cuts more of a giveaway than an investment incentive.

Zombie ideas" is a term used to describe theories or concepts that, despite being debunked or disproven, continue to persist in public discourse and policy debates. They are called "zombie ideas" because they refuse to die, much like zombies in popular culture. In the context of the book "Arguing with Zombies", the author, Paul Krugman, uses this term to critique certain persistent economic theories. For example, the idea that tax cuts for corporations will lead to significant business investment is considered a "zombie idea" because it continues to influence policy despite evidence to the contrary.

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