Whenever a BC liberal has brought up the matter of corporate taxes, the BC conservatives almost always point out that corporate taxes do no good at all because the corporations will only pass the cost on to the consumer. Now if taken at face value, that is surely a sensible statement. After all, don’t all goods and services have costs that comprise part of the retail price to the consumer? Of course they do! It is for this reason that I didn’t argue more strongly for corporate taxes.
But it dawned on me the other day that the conservatives’ claim may well be a false argument. Why? Because all well-run businesses charge what the market will bear, and any business that charges more than what the market will bear will soon face significant losses and, if the prices are not soon lowered to the market price acceptable to the consumer, will go out of business. When a business has difficulty pricing its goods or services at the acceptable market value, that business will make cuts in other areas. The first cuts will almost always be in personnel: those employees who are less essential will be laid off or fired, but the business will not cut off its nose to spite its face, as the saying goes, by making personnel cuts so deeply that it will damage its ability to do business. Furthermore, even in the best of times well-run businesses strive to cut fat, as it were, from the company rolls, so mass layoffs due to higher corporate taxes is not a great concern. After all, if high corporate tax rates were indeed a path to economic meltdown, we would have seen this happen across the first-world democracies long before now! If history is any guide, then moderately-higher taxes would not adversely affect America’s economy as a whole. Nor can it be honestly stated that American businesses face the sixth-highest business tax rate in the world (as this Bloomberg.com article claims. Why? Because as Professor Linda Beale, a tax law expert, states:[T]he US is actually a corporate tax haven, with the lowest effective corporate tax rates of almost all the countries that participate in the OECD. That’s a little fact that the Tax Foundation apparently doesn’t want the American public to understand, since all its hype is in terms of statutory rates and not in terms of effective tax rates.
The article makes clear that while America’s statutory tax rate is indeed among the highest in the world, our effective tax rate, after deductions and tax breaks are taken into account ,is, as Professor Beale states, among the lowest in the OECD.
And this brings us back to the conservative Big Lie about the evils of corporate taxation. A well-run business will not charge more than what the market will bear, nor will that business cut its payrolls to such a point that it will harm that business’ ability to operate profitably. When corporations are making record profits year after year, it should be expected that those businesses should be sufficiently taxed in order to pay for the taxpayer-funded infrastructure that they use including roads, regulatory enforcement, crime and fire prevention, and public education. If a corporation cannot operate profitably while paying such taxes, then instead of simply wanting to avoid paying the taxes that businesses are expected to pay in any other developed nation in the world, the major shareholders need to take a hard look at how that company is being run. There is nothing wrong with charging corporations a moderate tax rate, and there’s everything wrong with forcing the middle-class taxpayer to shoulder an ever-increasing share of the tax burden.
A corporation that pays taxes may not reap profits as obscenely high as some are doing now, but if that corporation is already charging what the market will bear, which is what corporations aim to do anyway, then the cost of those taxes will NOT be “passed on to the consumer” but will instead force the corporation to operate more efficiently. The side benefit is that as time goes on, because of those taxes they hate so much, the corporations will be able to do so with the support of a better physical and societal infrastructure.