A very helpful David Kocieniewski article in The New York Times lays out what progressive wonks have been saying for years"”even though America’s statutory corporate income tax rates are very high nobody actually pays them and the effective rates are much lower.
On top of Kocieniewski’s chart you see the even-more-striking fact that the corporate income tax in the United States raises an extremely small amount of revenue as a share of GDP. That’s in part because many businesses in the United States have shifted over the years to organizing themselves as S Corporations to avoid the high notional corporate income tax rate.
Either way you look at it, the point is that it’s not actually true that corporate America faces some terrifying tax disadvantage vis-a-vis other countries. It is true that making the headline corporate income tax rate lower would be a good idea since that might give us a less distortionary tax code, but in light of the long-term budget crunch that means we need to make up for any rate cuts by closing dividends. The Obama administration has laid out revenue-neutral corporate tax reform of that type to be its goal, but it seems to me that if we want to close the budget gap we ought to be aspiring to have a corporate tax reform that’s at least moderately revenue-enhancing.
The Obama administration has laid out revenue-neutral corporate tax reform of that type to be its goal, but it seems to me that if we want to close the budget gap we ought to be aspiring to have a corporate tax reform that's at least moderately revenue-enhancing.
And cave at the first sign of corporate caterwauling?
IF we reformed the tax code to in this ‘revenue neutral’ way, then we all know what would happen next: the low rate would stay low, and all of those tax breaks would be slowly reinserted anyway.
This is why we should just scrap the corporate tax anyway. IT would allow us to see subsidies as explicit policies and not be hiding in the shadows as tax breaks. The important thing is to tax people who can afford it and not some legal fictional person called a corporation. The savings would be distributed to employees (although not evenly) and it would be even easier to observe the robber barons who fleece their corporations. It is just to easy to demonize corporations and there are no specific people who are hurt so politicians find it easier to tax them.
Yes, then it would have to be reformed again. That’s how these things work.
Given that the effective rate only considers taxes paid, your argument that “it's not actually true that corporate America faces some terrifying tax disadvantage vis-a-vis other countries” is less than convincing. It may be true, but shouldn’t we consider the costs on accounting and legal fees required to achieve this low “effective rate” as part of the “tax disadvantages”. We’d need similar data for the other countries to have a fair comparison, but it doesn’t seem unreasonable to assume that a wider gap between headline and effective rates would suggest larger indirect but still relevant costs.
Smoke, meet mirror…
I would argue that these things have not actually been working at all over the past 30-40 years.
Edit: Also, you’d be constantly lowering the top-line tax rate in order to eliminate the deductions, only to have those deductions added in again, and over and over until there is nothing but a token tax rate… and probably a lot of tax-credits and subsidies.
Further Edit: I can only assume that you really didn’t think through the implications of your statement.
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