One talking point being pushed by some conservatives is that the tax rate for corporations is too high. A number of evils, such as unemployment, are blamed on this tax rate. The party line is that lowering the tax rate will increase hiring and help improve the economy.
At first glance, this has a certain appeal. After all, a tax rate of 35% seems rather excessive and it seems to just make sense that if companies paid lower taxes, then they would have more money to hire people, expand, and otherwise contribute to an economic recovery. However, a somewhat deeper look reveals the truth about the situation.
First, corporations have been making record profits and have not responded by hiring more people. As such, it seems likely that lowering taxes would not have any impact on hiring (unless the lower tax rates were linked to hiring people). After all, if record profits do not result in an increase in hiring, it seems unlikely that increasing profits a bit more by reducing taxes would have any special impact.
Second, when those favoring reduced taxes say there is a 35% tax rate they are rather like the infomercial shills who claim that they are offering, for example, $200 worth of products for $19.99. That is, what they say and what is real are two very different things. While it is true that the corporate tax rate is 35%, the reality is that most corporations do not pay taxes at that rate. In fact, 66% of American and 68% of foreign corporations paid no taxes from 1998-2005. The most famous of these is, of course, GE. GE paid no taxes in 2010 and apparently even claimed a tax benefit of $3.2 billion.
Given that most companies do not even pay taxes, it is difficult to believe that the 35% tax rate needs to be reduced or that reducing it would have any positive impact on the economy.
Third, the claim that lowering taxes will lead to more employment seems to be untrue. To support this, consider the example of GE. As noted above, GE paid no taxes in 2010 (and also claimed a tax benefit). If lower taxes caused companies to hire more people, it would seem to follow that GE should be hiring people. After all, their tax rate is 0% (or possibly a negative number). However, between 2007 and 2009 GE fired 21,000 Americans and closed 20 factories. One can only imagine what GE would have done if they actually had to pay taxes-presumably they would have fired all their American employees and closed all American factories. While this is but one example, this practice is a standard one among corporations. As such, the claim that cutting taxes for corporations will create jobs seems to be obviously false.
In light of the above arguments, lowering the tax rate for corporations would have no positive impact on jobs or the economy.
I think the idea is to close the loopholes so that corporations do pay taxes, and then tax them at levels comparable to the rest of the world, which are significantly lower.
It is not the tax rates, but the revenues, that matter.
It should be noted that for many years, the corporation income tax rate was 51%. During most of that time, our economy functioned quite well and the unemployment rate was low. In view of that, why some people want the corporation income tax rate even lower than 35% is unclear, unless for some ideological reason they want ALL taxes to be continually reduced until they reach zero and we attain a state of anarchy in which there are no public services and no government.
The current corporation profits greatly understate the real situation. The executive pay rates have dramatically increased so if executive pay rates were what they were 20 years ago but adjusted for inflation, corporation profits would be even higher.
If the US taxes corporations at 50% and the rest of the world taxes at 25%, fewer and fewer corporations will stay in the US.
It makes no sense to compare the present time with the period right after WWII, when the US had the only functioning economy. The global playing field is leveling, and we need to compete if we are to maintain our standard of living.
The taxes paid per person in the US are the same as elsewhere, but as a percentage of GDP they are smaller because our GDP per person is larger.
I don’t know when the corporation tax rate dropped, but it was still 51% in the late 1960s when I was studying accounting. That was WELL after WWII.
Following the logic of having all countries compete to have the lowest taxes, then corporation taxes would have to drop to zero and the entire tax burden would be shifted to individuals resulting in higher individual income taxes. Following the slippery slope principal, all regulations on businesses would be dropped, including anti-trust, safety, environmental, etc., in a never ending effort to have as much business activity as possible.
One step at a time, FRE. One step at a time. First, we’ll eliminate unions so there’s no one to fight for worker’s rights/ safety. Then we eliminate those pesky corporate taxes. Then we take on the regulatory agencies. Underfund the suckers until they’re utterly useless. At last Pres. Reagan’s “shining city on a hill” will be a dingy city on a dung heap “teeming with [ants] . . .hum[ming] with [flies].. . Open to anyone with the [stomach] . . .to [live] here”
frk–your anger is misplaced. You should carefully at which politicians create the loopholes, and which companies benefit from them.
It is called crony capitalism, and it stinks.
For example, the Wall Street Journal recently reported that Whirlpool Corporation paid no federal income taxes on its $18 billion in sales and $619 million in earnings for 2010.
They accomplished this feat by taking advantage of production tax credits ranging from $75 per dishwasher to $200 per refrigerator. Thus, Whirlpool was able to stockpile more than $500 billion in tax credits for making “energy efficient” appliances. Not only did Whirlpool pay no taxes last year, they will carry unused tax credits forward so that they will pay no taxes until many of the overly generous politicians have “left the scene of the crime.”
To take additional advantage of U.S. taxpayers and investors, Whirlpool has placed the unused portion of the tax credit on their financial statements as an asset. Thus, any cut in corporate income tax rates will result in a reduction of Whirlpool’s assets and net worth since it will lower the value of the tax credit. But Whirlpool is hardly alone in this entirely legal activity. For 2010, GE paid a corporate tax rate of less than 9 percent on its $12.2 billion in profits after it took advantage of federal tax credits designed to promote laudable and potentially dubious social goals. IRS data indicate that 493 U.S. corporations with more than $100 million of 2007 profits claimed an average tax credit of more than $148 million.
http://economictrends.blogspot.com/2011/03/many-corporations-oppose-corporate-tax.html
“Following the logic of having all countries compete to have the lowest taxes, then corporation taxes would have to drop to zero and the entire tax burden would be shifted to individuals resulting in higher individual income taxes. ”
This is exactly what is happening. Tax burden is shifting from corporations to individuals. One of the side effects of globalization, but it is not obvious that anything can be done about it.
U.S. Lagging Behind OECD Corporate Tax Trends
by Chris Atkins and Scott A. Hodge
Fiscal Fact No. 55
Introduction
A wave of corporate income tax reduction is sweeping through many countries in the Organization for Economic Cooperation and Development (OECD), but not the United States. The latest to consider corporate income tax rate reductions are Australia,1 Germany,2 New Zealand,3 and Spain.4 Others, like Canada, are continuing to phase in corporate rate reductions in 2006 and beyond.5 This movement transcends political philosophy, with center-right ( Australia), centrist ( Germany) and center-left ( New Zealand, Spain) governments all considering corporate income tax rate cuts.
As OECD countries continue to lower their corporate income taxes, they can expect to reap more foreign direct investment from the U.S. A recent study by Deveraux and Lockwood found that a 10 percent corporate rate reduction by an EU member-state can reap a 60 percent short-run increase in investment by U.S. multinational corporations.6
While foreign governments entice U.S. investors by lowering their corporate tax rates, the federal government in the U.S. stands pat with the same rate structure it has had since 1994. Indeed, one of the ironies of tax policy during the Bush presidency is that five years of tax-cutting legislation have left the corporate income tax rate unchanged.
http://www.taxfoundation.org/news/show/1466.html
So, as per my comment(12:16pm), does anyone here know where this taxfoundation info places the US relative to other countries in terms of actual dollars being “redistributed” from corporations to government . I still haven’t heard what kinds of tax loopholes, if any, are available to existing corporations in Germany, Canada, etc. nor have I heard if those same loopholes (if they do exist) are available to US corporations that move to Germany, Canada, etc. Without that info, I don’t think I can fairly assess whether our arguably high (but be-loopholed) corporate tax rate is the main factor that drives US corps to other lands, or if cheap labor and weaker labor regulations play a major factor. Remember, we’re talking bottom line in a capitalist world, and when it comes to the bottom line, often anything that serves it is acceptable.
And T. J.– Re your 4:48– I don’t think my anger is misplaced. I just didn’t state it accurately enough. I’d gladly add crony captalism (oo oo that smell can’t you smell that smell) to the list.
“The proposal of any new law or regulation which comes from [businessmen/merchants/manufacturers], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”— Adam Smith I’d read that with emphasis on the “always” and the “never”s and the “most”s and “deceived” and “oppressed.” It would seem that capitalism and cronyism are not infrequent companions.
Good question. What is generally out there is the “official” tax rates, rather than the actual tax rates. Corporations, I would infer, probably get sweet deals around the world. Even in “communist” China.
Is there a chart somewhere that provides a realistic comparison of the corporate tax burden in the US, China, Brazil, Germany, Japan, Canada, etc. AFTER tax loopholes are taken into account? What kinds of loopholes exist in those other countries?