Dorgan and Levin fall into the trap of their flawed assumptions when they conclude that closing loopholes and increasing enforcement will bring in revenue. It won't. It will just cause those companies to move entirely overseas, costing us jobs and more loss of tax revenue. The real answer which this report points to should be obvious. We should change tax policy so that instead of driving companies away, we make America the country to which these companies, and other companies around the world, want to bring their business. We should become the tax haven and the country with the most business friendly environment.
It is a national scandal that our corporate tax rate has now become one of the highest in the world, encouraging our own companies to take their profits and their business overseas. America is supposed to be the model of capitalist enterprise for the world, yet we have one of the highest corporate tax rates of any major nation; now tied with France, which recently lowered its tax rate to match our 35%. If the traditionally overtaxed and business-hostile French are lowering their corporate tax rate and ours is as high as theirs is, we are doing something very, very wrong. Even worse, if you add in our state corporate taxes, on average our total corporate tax rate is 39.27% which is higher than every developed nation except Japan, and 24 states have a total combined corporate tax rate even higher than Japan. No wonder companies want to take their profits out of the US or leave altogether.
The GAO report says that because of the business they are transferring overseas, companies are paying an effective tax rate of about 15% in the United States. The rational response to that news should be to follow the natural trend of the market and lower the corporate tax rate to 15% or lower. Ireland did exactly that a few years ago, lowering their corporate tax rate to 12.5% and as a result, they became one of the fastest growing economies in the world. Suddenly, they found companies from all over the world falling over themselves to open up offices in Ireland, or move their entire operations to the Emerald Isle. Instead of losing tax revenues when they lowered the corporate tax rate, they saw a massive increase in tax revenues, not only from all the new businesses which came to Ireland, but also from secondary sources, like sales and personal income taxes from increased salaries and additional salaries of immigrant workers brought in by those companies or attracted to the booming economy. The result is that their new lower corporate tax rate brought the government far more money than it had received at the previous higher tax rate.
Article comments
— go to most recent comments1 - bliffle
There are two things wrong with Daves naive analysis:
1-companies get deductions that are not available to mere citizens. They can deduct all their expenses; citizens can only deduct only a few favored expenses, like mortgage payments. The bulk of citizen earnings are tax targets. Unless, of course, they have enough power to demand and get tax-favored forms of income. In any case, they have tremendous lobbying power, not available to weenie citizens, that gives them a huge advantage at the government bargaining table when seeking favors. And it shows: 40 years ago 70% of taxes were paid by corps and now it's less than 25%. So the field is tilted in favor of companies from the start.
2-companies can be owned by anyone in the world, and they often are owned by foreigners. So the benefits that fall to companies go, in large part, to foreigners. At the expense of USA citizens. Is that a good thing to promote?
2 - Dave Nalle
Bliffle, thank you for proving my point that those on the left are so dogmatically anti-corporate and tax-obsessed that they are completely incapable of exercising basic common sense on an issue like this.
1-companies get deductions that are not available to mere citizens.
Yes they do. And they also get taxed under a separate tax structure accordingly. What's more, their production is often taxed twice, both with the corporate income tax AND with sales taxes.
They can deduct all their expenses;
Actually, not all of them. But are you really arguing that they should be taxed on gross revenues rather than on net profits? That sure would put an end to our economy.
citizens can only deduct only a few favored expenses, like mortgage payments. The bulk of citizen earnings are tax targets. Unless, of course, they have enough power to demand and get tax-favored forms of income.
Which has zero to do with this issue. Though I'm all for lowering personal income taxes too.
In any case, they have tremendous lobbying power, not available to weenie citizens, that gives them a huge advantage at the government bargaining table when seeking favors. And it shows: 40 years ago 70% of taxes were paid by corps and now it's less than 25%. So the field is tilted in favor of companies from the start.
So? It's still too much. Those taxes are just passed on to citizens in the form of price increases. Corporations don't pay taxes in any real way no matter how much you charge them.
2-companies can be owned by anyone in the world, and they often are owned by foreigners. So the benefits that fall to companies go, in large part, to foreigners. At the expense of USA citizens. Is that a good thing to promote?
So you'd rather foreign companies stay overseas and don't do business here or employ Americans?
Do you EVER think about the silliness you write?
Dave
3 - Baritone
Dave,
You say: "Corporations don't pay taxes in any real way no matter how much you charge them."
Doesn't that obviate your entire premise?
I see the logic of your position, but it may well be far more complex than you suggest.
Taxes are an obsession of yours. Yet overall we are not taxed nearly so much as those in other countries. Government costs money. Waging war costs BIG money. There is a great deal of waste in government - not the least of which is all the billions that have been misspent in Iraq and probably Afghanistan or that has simply disappeared into a black hole.
Conservatives hate to see money spent on social programs, but love to throw money at all things military. Spend big bucks to kill. Spend as little as possible to help people in any way.
I know that the above was not the focus of your article, but taxes all come down to how much is spent and for what.
B
4 - Dave Nalle
You say: "Corporations don't pay taxes in any real way no matter how much you charge them."
Doesn't that obviate your entire premise?
Not at all. If taxes are lower then overhead is lower, so they can sell their products for a lower price, be more competitive and make more money.
I see the logic of your position, but it may well be far more complex than you suggest.
It's certainly far more complex than Durgan and Levin think it is.
Taxes are an obsession of yours. Yet overall we are not taxed nearly so much as those in other countries.
A popular untruth. In actuality because we pay property, sales, state income, federal income and corporate taxes the overall tax burden on Americans is quite high. Belgium, Germany, Greece, Spain, Ireland, Italy, Netherlands, Austria, Portugal, Japan, Norway, New Zealand and Switzerland all have lower total effective tax burdens per capita.
Government costs money. Waging war costs BIG money. There is a great deal of waste in government - not the least of which is all the billions that have been misspent in Iraq and probably Afghanistan or that has simply disappeared into a black hole.
I think we can take all this as a given. All the more reason not to drive away businesses which could create jobs and provide more revenue.
Conservatives hate to see money spent on social programs, but love to throw money at all things military. Spend big bucks to kill. Spend as little as possible to help people in any way.
What a lovely collection of stereotypes you have. Conservatives are all for spending to make psoples lives better through education and private charity and expanding the economy to make more jobs available. As for the military, many conservatives would like to see that money spent a lot more efficiently and responsibly, but military spending is one of the largest sources of pork and it's hard to pry legislators of both parties away from that.
I know that the above was not the focus of your article, but taxes all come down to how much is spent and for what.
But what the money is spent on is really not relevant here. This is all about improving the business environment so potential sources of revenue don't go overseas.
Dave
5 - troll
historically speaking - private charity (and the so-called 'social economy' generally) has been as much a system of redistributing illth as our present government run entitlement approach to ensuring social well being...why would this be different in an empowered modern iteration - ?
...one other question - has there been an instance when a reduction in corporate taxes has not been followed by an increase in tax revenue - ?
6 - Baritone
A single worker in the U.S. pays approximately 30% of his or her earnings in all types of taxes as compared to some countries wherein the average single worker pays up to 55% of their total earnings. The U.S. is ranked no worse than 21st out of 29 countries polled.
As a % of our GDP, the U.S. tax burden is just under 30%, far less than many developed countries in the world.
B
7 - David LaFerney
I pretty much agree completely, as would most people who finished high school economics with the least understanding of diminishing returns.
The problem is that sensible ideas from both conservatives and liberals are often rejected by people from the other side without fair consideration of merits, because of association with the political "enemy".
Maybe someday we will have leadership who can build unity instead of division, and then ideas from both sides can get more reasonable consideration, and none of us will be painted as the enemy.
8 - Dave Nalle
Baritone, I don't know what source you were using, but I found 13 contries which were rated at 28% or lower among developed nations. The US should not be in the top half of developed nations for total tax burden. The fact that some countries are even worse off than we are doesn't make our current tax situation acceptable, especially when our high corporate tax rate is driving companies away from our shores.
I actually missed one important point in the article. I forgot that in addition to our federal corporate tax a majority of our states ALSO have a corporate tax, with the result that we actually have a higher total corporate tax rate than France.
Our average corporate tax rate taking state taxes into account is actually 39.27%,higher than every developed nation except Japan.
Dave
9 - stephen gpowers
I think that all companies,just as people should have to pay federal taxes,then maybe we would not be in a 10 trillion dept
10 - Dave Nalle
Another genius votes Democrat...
Dave
11 - Dr Dreadful
I wouldn't mind being in the 10 trillion department, as long as that's the salary paid to employees.
12 - Clavos
Salary? Salary???
That's what my tax bill was last year.
The yacht business is good...
13 - Franco
Our Tax System Explained:
Suppose that every day, ten men go out for beers and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested a plan to reduce each man's bill, and he worked out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Note that the tenth man got the smallest percentage reduction and now paid 61.25% of the total bill, where he previously paid 59% of the bill.
While I'm struggling to remain in the middle class with today's soaring energy prices, I realize that I am better off than a lot of folks. I also understand that without the economic opportunity that comes with the investment of the rich people far outweighs the supposed unfair tax breaks they get. Read on. This is where it gets good.
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20 declared the sixth man. He pointed to the tenth man, "but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
14 - bliffle
The naive idea that corporations really pay no taxes because they merely pass the tax on to their customers, seems to be persistent, in spite of it's obvious flaws.
In fact, corps DO pay taxes. Honest injun. I've owned a couple of corps, and by Jove, we really paid taxes. Quarterly, and accompanied by profuse paperwork. Had I gone to my customers and asked them to chip in they would have laughed at me.
But going from mere reality to Daves rich fantasy world for a moment, if it were true, the would it not also be true that individuals never pay any taxes? Don't individual taxpayers/employees/freelancers/whatever also pass on their taxes to the customers/employers/etc. who pay them?
Same for Sales taxes. Don't the customers who pay the sales tax also pass that on to their source of income?
So by Daves interesting premise, no one anywhere ever REALLY pays a tax and all taxes are ineffective.
QED.
15 - Dave Nalle
The naive idea that corporations really pay no taxes because they merely pass the tax on to their customers, seems to be persistent, in spite of it's obvious flaws.
Bliffle. Sometimes I wonder if you really are incapable of understanding simple concepts or if you're just being deliberately obtuse just to be annoying.
In fact, corps DO pay taxes. Honest injun. I've owned a couple of corps, and by Jove, we really paid taxes. Quarterly, and accompanied by profuse paperwork. Had I gone to my customers and asked them to chip in they would have laughed at me.
Yes, you were responsible for paying taxes as a corporation. Are you telling me that the money you paid those taxes with came from a source other than sales or whatever your customers paid you for services? Are you telling me that you didn't calculate those taxes into your prices as part as your overhead? If not, that may explain why you always mention these businesses in the past tense.
But going from mere reality to Daves rich fantasy world for a moment, if it were true, the would it not also be true that individuals never pay any taxes? Don't individual taxpayers/employees/freelancers/whatever also pass on their taxes to the customers/employers/etc. who pay them?
Bliffle, do employees have the ability to charge their employers more if they are being taxed more? Your comparison makes no sense at all.
Same for Sales taxes. Don't the customers who pay the sales tax also pass that on to their source of income?
Again, if sales tax goes up do you have the ability to increase your salary at will in response?
You ought to try thinking just a little bit before commenting.
Dave
16 - Dan Miller
It is rather obvious, at least to me, that businesses pass along to their customers whatever taxes they pay to the extent that they are able to do so. This results in higher costs of goods and services, and constitutes regressive, not progressive, taxation. I have often wondered why "progressives" insist upon regressive taxation of this sort, and the only answer I have been able to come up with is that a scapegoat is needed and "rich" businesses are the best ones available.
Does this undercut Dave's point? Not at all. Businesses outsource many of their activities because it reduces their costs. They form offshore entities into which they funnel profits so that they become exempt from U.S. taxation. They also form new entities which actually manufacture stuff in foreign countries, at least in part to take advantage of lower business tax rates there. By reducing taxes on businesses, businesses would be able to reduce the costs charged for their goods and services, and competition would be a strong incentive to do so. It also seems probable that, like Ireland, significantly reduced business taxes would induce more foreign companies to develop businesses in the U.S., hiring U.S. workers and thereby increasing the level of domestic employment.
Unfortunately, these things almost certainly will not happen, and the beatings will continue until morale improves.
Dan
17 - bliffle
Companies dealing with their clients have to compete, exactly the same as employees dealing with their employers. So taxes have the same effect.
Really, a businessman who goes to his customers with a price increase occasioned by a tax increase cannot DEMAND anything, any more than an employee can demand a salary increase because his taxes increased.
They are the same.
18 - bliffle
Companies dealing with their clients have to compete, exactly the same as employees dealing with their employers. So taxes have the same effect.
Really, a businessman who goes to his customers with a price increase occasioned by a tax increase cannot DEMAND anything, any more than an employee can demand a salary increase because his taxes increased.
They are the same.
19 - Dan Miller
Bliffle,
The company cannot demand anything. It can, however, establish a price at which it is willing to sell. Assuming comparable tax increases for other businesses similarly situated, they can and probably will do much the same thing, with the result that prices will go up -- a form of regressive taxation. Depending on the elasticity of demand, the company might sell a bit less.
The workers can demand whatever they want, and if they (and their unions) persist will possibly get wage increases, causing the prices of goods and services to increase again.
We call these effects inflation. If that's a good thing, then lowering taxes on businesses is probably a rotten idea. In my view, lowering taxes is a good thing and inflation is not. It probably all depends on one's point of view.
Dan
20 - Clavos
That money was well spent at UVA.
21 - Dave Nalle
I suppose not lowering taxes and encouraging inflation, loss of jobs and companies going overseas COULD be an attractive idea if your plan was to destroy the economy so that people would beg government to put them all on the dole and nationalize every business. But who would want that...
Oh yeah, socialists.
Dave
22 - Dan
I've come around a little on corporate taxes. At least if taxes must be collected, everyone who buys the products will be paying the same share of passed on taxes by the corp. In that way it really is a "fair" tax. Buy more product, pay more tax.
The best way to make the point to liberals who insist that corporations eat the taxes is to say fine, renters pay no property tax, The landlord is the only one gouged. Of course, they'll still deny,(yes to the corp., no to the landlord) but that's just how liberals are.
One point they might have is that big corp., and big landlords may be able to absorb more tax liability through volume, but that cut's against their big business bad / little guy good creed. Although little landlords probably aren't on their favorite's list either.
23 - bliffle
Dan sez:
"...big business bad / little guy good creed. "
How quickly these economic discussions turn into little morality plays! Why?
24 - Dan
"How quickly these economic discussions turn into little morality plays! Why?"
It hardly seems fair to criticize for pitching morality. Some would say redistribution of wealth is a moral question.
I'm just sayin that liberal sentiment is with small operations and against big ones. In times of tax distress, bigger operations would be better able to absorb a portion of the hit because of volume.
25 - bliffle
Dave has been making the case that you can't tax corporations anyway, since they pass taxes on to their customers.
So why not just double corp taxes, since they're passed on anyway? It wouldn't affect business at all.