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Actually, this post is about corporate taxation.

You may have heard of Obama's drive to crack down on tax havens. There's a lot of reasons why this either won't be successful or won't have a very big effect (I actually took a class on this), either in terms of bringing investment home to the U.S. or in terms of increasing government revenue from corporate tax.

Yglesias has a somewhat better idea: cut headline corporate tax rates and close loopholes. Both of those things decrease the attractiveness of tax avoidance behvior (e.g. using tax havens and loopholes) on the part of corporations; if there's fewer loopholes and lower tax rates, it makes more sense to just pay up. Since avoidance behavior is costly and ultimately useless to society, this will improve overall economic efficiency even if it's revenue-neutral.

But here's an even better idea: lower corporate tax rates even more, and replace the lost revenue with personal income tax. This would be smart because corporate tax dicourages investment, while personal income tax only discourages work...and investment is a LOT more tax-sensitive than work. It would also be smart politicaly, since corporate tax falls largely on the middle class (by reducing wages and raising prices), while personal income tax can be targeted to fall on whoever we want (e.g. the rich).

In other words, make us a tax haven. Well, not completely. But replacing corporate tax with personal income tax would increase investment in the U.S. and make the tax system more transparent and fair. But it's a better idea than sending our Navy to go bully the Cayman Islands into raising their tax rates.