U.S. CORPORATE TAXES NEED TO GO TO ZERO

Christopher MarkowskiArticle, Research & The Economy0 Comments

MARCH 2012

On April 1, our ally Japan is playing a cruel little April Fools’ Day joke on us: The country is lowering its corporate tax rate from 39.5% to 35%.

This will give the United States the dubious and awkward distinction of having, at 39.2%, the highest integrated federal/state tax rate among the developed countries of the world. In the world of politics, where nothing is without nuance and message, I wonder what our friends in Japan are trying to tell us?

But Japan is not the only prankster in the bunch. Some of our largest corporations — members of the venerable Fortune 1000 club — are also paying a pretty nasty trick on us too. They are paying no taxes whatsoever. See the list, below, from the self-proclaimed non-partisan Institute on Taxation and Economic Policy for companies that paid no taxes from 2008 to 2010. Worse, despite profits of more than $160 billion for the period, the companies actually got cash refunds of $10 billion.

So my question is, in a country in which the corporate federal tax rate is 35%, why is the average corporate tax rate — i.e., what is actually paid as a share of profits — about half of that amount? The answer is easy: loopholes and tax perks doled out by congressmen and senators. Tax advantages are like patronage jobs: the currency of politics, only on a much larger scale. It’s how things get done.

Unfortunately, tax breaks for election contributions is, in the final analysis, nothing more than a shakedown. Regrettably, it’s how the Mafia does business too.

My solution to this sordid, sad and ethically challenged mess is simple: reduce the corporate tax rate to zero. That’s right, a bagel, nada, zippo, zilch … nuh-thing. And, instead, tax consumption, i.e. sales. Even the founding fathers knew this was a good idea. To wit, this little pearl from the Federalist Papers by none other than Alexander Hamilton himself:

“It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end proposed — that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty that, ‘in political arithmetic, two and two do not always make four.’ If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds.”

 

Fox Lauren, ‘Dubious Distinction’ for U.S. Corporate Tax Rate, Chicago Tribune, March 2012 

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