How punishing is it?
I would argue that this worldwide tax system and the high rates together are responsible for the many (not all) tax breaks and the low revenue raised by corporate taxes. A punishing tax system gives corporations incentives to lobby Congress for important tax breaks, and lawmakers are always happy to oblige. If fact, they are happy to oblige even when the tax burden is relatively modest. So, for instance, American corporate profits earned abroad and at home are taxed at a higher rate than in most other countries, so corporations get a “break” on their U.S. tax bill as long as their profits are not repatriated. As a result, many companies are not bringing their profits back to America. It’s legal, and it definitely lowers the amount of tax collected. I am not arguing for higher tax collection, by the way, I am just stating the obvious — not to mention that without these breaks, companies would engage in more tax evasion and there is little doubt that that would have economic consequences.
It’s almost like a mafia protection racket. “Nice little business you have here. Be a shame if the taxes got raised on it, or we took away some of your credits and deductions…” The latest demagoguery against the oil companies, threatening to single the industry out and take away the same breaks that every other business gets, is a perfect example of the instrinsic corruption of a system that grants lawmakers so much power, and was one of the things that the Founders were trying to minimize, if not avoid. As she notes, we just need to get rid of the damn thing, since it is not corporations who pay it, anyway.
When the cost of doing business here is too high here, corporations move their operations overseas. They’d be not only foolish but fiscally irresponsible not to do so if they can. Not only does America lose the tax revenues we could’ve collected on the corporation, we lose the income taxes from its employees. Too bad many people can’t grasp the concept that 15% of something is more than 35% of nothing.
“It’s almost like a mafia protection racket. “Nice little business you have here. Be a shame if the taxes got raised on it, or we took away some of your credits and deductions…” ”
This is a concept best described by a term coined by California’s late Speaker of the House, Jesse Unruh. The term is “Milker Bill”. Pass something, while ranting against an industry publicly, that said industry cannot continue in the face of, then depend on their lobbyists to shovel money into the right pol’s campaign coffers quietly, in order to ensure the bill is quietly repealed or amended into innocuous drivel in the next session. It helps ensure a regular flow of “the Mother’s Milk of politics,…money”
Corporate income taxes should be repealed. Net corporate income ends up in some combination of
– dividends, taxable to the individual.
– benefits, which might reasonably taxed at a flat rate if not traceable to beneficiaries as dividends.
– reinvestment, which should not be discouraged by added taxes.