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Corporate Taxes — The Cure to Our Budget Woes?

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To hear the liberal media and their loyal Democrat following talk about it, our budget issues could be solved by taxing corporations much more. But will that really solve our problems? Just the slightest bit of looking at the issue with an eye toward business shows it will not.

Corporations exist to make money for their shareholders. A corporation that does not continually bring in revenue (usually in ever increasing amounts year-over-year) finds its share prices drop, meaning the corporation itself drops in value. If the corporation does not increase its earnings, it will end up filing for bankruptcy.

Reduce the Corporate Tax RateIt is, therefore, in every corporation’s best interest to reduce its operating costs–including tax liability–as much as possible. If that corporation can legally use the tax code to its benefit to pay no taxes (as General Electric is reported to have done), it means more profit it can report to “the Street” and its value will go up.

The liberals in this country think that if they could just tap into the vast profits of these mega-corporations our problems would be over. Democrats believe that if they could tax corporations so they could not escape paying  high taxes, America could balance its budget and continue handing out “free” benefits to everyone (as long as they vote Democrat).

The problem with this scenario is that corporations will not pay more than a token amount of tax out of their profits. “What?” you say? That’s right. A corporation will not allow its bottom line to suffer and devalue the company. Any rise in operating costs — including a hike in actual taxes — will be passed on to the consumer in the form of higher prices.

I don’t know about you, but I already think I’m subsidizing the “poor” enough. I personally pay tens of thousands of dollars a year for social security, medicare, federal taxes, and so on. I already pay higher pharmaceutical drug prices so Pfizer and GlaxoSmithKline can reduce the price or give it away to those who can’t afford it. I pay higher utility bills to subsidize lower income families. I don’t also want to pay higher prices on every product I buy because the corporation who made it is now paying higher taxes to the feds.

In fact, raising taxes on corporations is actually a hidden “regressive” tax on all Americans–even those who would not have to pay taxes at all. Progressives (i.e., liberals) always whine about taxes that are “regressive,” meaning that lower income people feel greater effects from the tax than the more well-off do. (For example, a flat tax on a pack of cigarettes affects lower income people more than the “rich” because it is a higher percentage of their income.) Yet, it is those same liberals who want corporations to pay higher taxes and pass the cost along to consumers.

As if those reasons are not cause enough to keep taxes on corporations down, an increase in taxes will push more corporations to leave the United States. Businesses leaving our shores means less work for Americans and less tax revenue–both corporate and personal. Both of these results will cause liberals to call for more taxes and more “stimulus” to create jobs. The spiral will continue until the left realizes taxes are never the answer to any problem but are instead the cause of most problems.

Like the stimulus, the health care plan, and most of the other liberal ideas floating around Washington, increasing the corporate tax is purely a “feel good” plan that makes no sense. It sounds good because we all want to help others and get that warm fuzzy feeling from believing we helped, but increasing corporate taxes will not solve any problems. In fact, like most liberal schemes, in the long term more corporate taxes will end up doing more harm than good.

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About Dave Jones

  • Glenn Contrarian

    Dave –

    But here’s the rub – according to the rules of the market, corporations do not in and of themselves control the prices. If the people cannot afford what the corporation is selling, the corporation WILL lower the price so that enough people can afford it.

    And if the corporation is taxed like it SHOULD be, it STILL will not be able to raise prices above what the market will bear…which is where the price is already, and where the price always is.

    Our national debt was (after inflation) even HIGHER after WWII…and what did we do? We taxed the corporations and we taxed the rich at a NINETY percent tax rate…and what happened?

    We nearly paid off the entire national debt, and we did NOT go into any kind of economic disaster like we have three times since Reaganomics took effect.

  • Boeke

    Somebody will be taxed, after all we have all those lovely wars to finance, so why not tax where the money is, in the corporations?

    For one thing it simplifies collections a lot.

    If conservatives were serious about reducing deficits and debt they’d advocate rolling back the Bush tax cuts and ending the Bush wars, but since they don’t I assume they are just insincere.

  • Cannonshop

    Eighteen thousand pages of U.S. Tax Code. Corporations employ literal armies of lawyers to find ways to avoid paying those taxes-not to mention the vast numbers (a true bipartisanship) of politicians they purchase annually (including Pols who make a show of wanting to increase taxation/regulation on business!)

    Not to mention what REALLY happens when you have a product that is in demand, but the taxes drive the price up. Look at the sterling history of Liquor taxes, cigarette smuggling, or the unlawful importation of materials like Freon-12.

    What “The market will bear” runs in a lot of different directions-if it costs too much to make it here in America, corps have no problem going overseas (thus avoiding U.S. taxes and regulations).

    They vote with their feet.

  • Glenn Contrarian

    C-shop –

    Yes, they DO employ armies of lawyers…but if the loopholes are taken away, then those lawyers can’t use those loopholes.

    Furthermore, it’s a false argument to claim that the corporations will simply go overseas. Why? Because they’re ALREADY doing that – they’ve BEEN doing it since Reagan began deregulating everything in sight.

    Think about it – WHEN did businesses start moving overseas and taking our manufacturing base with it? Was it during the 50’s when our top marginal tax rate was 90%? No. Was it during the twenty-year period that followed when our top marginal tax rate was 70%? No.

    They started moving overseas en masse when Reagan deregulated everything in sight…never mind that he slashed taxes.

    And while the corporations might raise prices somewhat due to taxes, they will ONLY raise their prices to what the market will bear…and NO HIGHER.

    And if their prices are already at that point, then they will NOT raise prices.

  • Boeke

    Additionally, the House/Senate Joint Tax Committee says we provide over $270billion of tax subsidies to business every year. THAT looks like a good place to cut.

  • Cannonshop

    #5 well, we find a point of agreement on subsidies, at least-they need to be curtailed-a business that can’t compete without DIRECT government help, SHOULD fail.