Five Biggest Problems: Corporate Taxes

Part of a series on the Five Biggest Problems Facing America:

Introduction

5. Unnecessary wars

4. Inequalities in public education

3. Corporate tax loopholes (Tuesday)

2. Medicare (Wednesday)

1. Money in politics (Thursday)

Conclusion (Friday)

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In each of these posts, I am basically trying to claim that we’ve lost commonsense on some of the biggest issues facing the country.  This is one.

I understand the Supreme Court’s decision that a corporation is a citizen, and is afforded the same rights that a private citizen has. That is ridiculous, and I’ll tackle it on Thursday.

But for now, let’s talk about our problem with not enough revenue in our government. While I agree that some entitlement programs need to be cut (see tomorrow), we also need more money in the coffers. That money can and should come from corporations, many of which have the ability to pay.

The problem, it seems, is that they also have the money to pay for lawyers and accountants to find ways for them to not pay taxes. Running a cost-benefit analysis, their money is currently better spent on the latter.

I doubt that a flat tax, or even a simplified graduated tax rate, will ever come to be for individuals. But — and I say this as a small business owner — it seems totally reasonable to flatten and simplify the tax rates for corporations. Because, if corporations are indeed citizens, then they have a keen interest in the recovery of the American economy, not just in their own bottom lines.

  • http://workingonmyrewrite.blogspot.com/ bob c

    We are living in a seismic change in what might be called any semblance of U.S. corporate patriotism. Very few corporations pay taxes on 35 percent of their profits. With the help of complex international tax loopholes, some companies manage to pay almost no corporate tax at all. They shift their tax status to Ireland, Bermuda and the Cayman Islands – any place where there is no corporate tax rate.

    If American companies paid their fair share, along the lines of other developed or developing countries are, the effective tax rate would be in the low- to mid-20s. When that happens, we would see some kind of capital coming back into the U.S.

    Rather than villianizing folks like teachers, nurses and unions, it is long past time for corporations to act responsibly and care their fair share.

  • Jeremy Loeding

    I have so many questions about taxes in general let alone the corporate tax. Governing bodies have proven over and over again that they are poor managers of money. Furthermore, It seems to me that taxes are just a form of legalized stealing. So I don’t think it matter of us asking big corporations to pay more cause they can afford it. Taxation to anyone is still morally wrong. I know that is a crazy notion but We assume that taxes is just a part of being a civilized society and I think that is an assumption that has cost us dearly.

    Tony, why are taxes morally acceptable at all? Can we not imagine a better way?

  • J.T.

    Don’t get me wrong – as a poor dude (relatively speaking), I’d definitely like to see the rich folk (relatively speaking) and corporations pay more taxes. You could collect the amount of my individual taxes about eleventy bazillion times over if you tax GE even a fraction of that supposed 35%.

    HOWEVER, isn’t it the case that if corporations start having to pay more tax, thus lowering their total profits, that they’ll just pass the not-savings on to us, the consumers? Hypothetically- if GE or ExxonMobil ends up having to pay $5 billion more in taxes, won’t they just charge 5 million people $1000 MORE for gas or cable every year? They would never let it hurt their profits. Thus, everything becomes more expensive for those of us who actually pay our taxes, and our income becomes less valuable.

  • Patrick

    I totally agree with the idea of getting rid of corporate tax breaks. As I’ve said before, government rarely picks winners or winning strategies (Solyndra just being the most recent and obvious example). The premise behind corporate tax breaks is that taxes are so destructive, we need to change the law for some companies so they can avoid them to better compete. My point: if the tax is that destructive, why not get rid of it for everyone?

    To those who don’t think corporations pay their fair share I ask, why should they pay more than they are legally obligated to pay? I don’t. I’m guessing no one here does. Warren Buffett sure as hell doesn’t allow his companies – or his personal accountant – to pay $1 more than the law demands (the hypocrisy of that man is larger than his bank account).

    If companies are moving assets overseas, maybe its because we have the either the largest corporate tax rate in the world or one of the largest. Capital seeks efficiencies. If it is efficient to operate in the US, we win. If it isn’t, we lose.

    • http://workingonmyrewrite.blogspot.com/ bob c

      Patrick, companies are moving assets overseas because in great part there are so few regulations on corporations. Americans look so short-term nowadays that checks & balances have gone the way of travel agents & Blockbuster.

      In point of fact, U.S. corporate tax rates are only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home. A Government Accountability Office study released in 2008 found that 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied.

      As for Mr. Buffet – he gave away $1.78 billion in 2011. In 2006 he made American history by making the largest ever charitable donation by an individual – $37bn to the Bill and Melinda Gates Foundation. If that is hypocrisy, we sure could use a lot more of it.

      • Patrick

        And who misses travel agents or Blockbuster? Something far more efficient has come in their place.

        I’ll let Mr. Buffett explain for himself just one example of why he is a hypocrite:

        ” …if the government’s purposes are so vital, why doesn’t he simply give the money to the IRS?

        “Rebecca Quick of CNBC put that question to Mr. Buffett in 2007. His answer: “Well, that’s a choice and it’s an option . . . If I had to give it to a single individual, or make some young Buffett a multibillionaire, or give it to the government, I’d absolutely give it to the government. I think that on balance the Gates Foundation, my daughter’s foundation, my two sons’ foundations will do a better job with lower administrative costs and better selection of beneficiaries than the government.””

        From: http://online.wsj.com/article/SB10001424053111903918104576504650932556900.html

        • http://workingonmyrewrite.blogspot.com/ bob c

          Patrick, checks and balances make the system more efficient and effective.

          Tony makes the point:

          That money can and should come from corporations, many of which have the ability to pay.

          If the surreal logic of the Supreme Court is actual – that corporations are people – then we must conclude that corporations without checks and balances are unpatriotic.

      • Greg

        @bob c. Buffet giving his money to charitable organizations of his choosing is quite different than handing it over to the government which was Patrick’s point I believe.
        Call it reduced regulations or reduced corporate tax… Corporations will operate where they can maximize earnings. That’s what shareholders demand.

        • http://workingonmyrewrite.blogspot.com/ bob c

          Greg, the short-term gratification of our financial markets and the unregulated nature of our corporations has created a toxic model that is unsustainable.

          Shareholders have many demands – evading responsibilities is not one of them.

  • http://redheadinrapid.blogspot.com Nate T

    A few things:

    1. Corporations are not citizens, but are persons, a key distinction. This development in the late 19th Century was an important part of our economic strength. This was a net positive, allowing for more investment, growth, and prosperity in the USA.

    2. Corporations pay all sorts of taxes all the time. They pay property taxes and sales taxes and payroll taxes. What you are referring too is Corporate income tax.

    3. Corporations don’t pay corporate income tax because either they didn’t make much in profits (happens all the time) or the government has all sorts of tax breaks and rules (see post above to note off shore rules). Many of these tax breaks are written to encourage investment, such as being able to write off depreciation of durable goods. I know a farmer in central MN who is disappointed any year he pays corporate tax (his farm is a corporation).

    Tax policy is an important issue, and our tax code is rife with significant efficiencies encouraging all sorts of strange behavior. Corporate tax rates need to be reformed, but I would recommend cutting out all the deductions and breaks and get a nice 10% flat corporate tax.

  • Patrick

    Timely – and complete – debunking of Mr. Buffett and President Obama:

    Ave tax rate paid by adjusted gross income, 2008 (Source: IRS)
    23.3% – $1,000,000 and up
    24.1% – $500,000 – $1,000,000
    19.6% – $200,000 – $500,000
    12.7% – $100,000 – $200,000
    8.9% – $ 50,000 – $100,000
    7.2% – $ 30,000 – $50,000

    • http://workingonmyrewrite.blogspot.com/ bob c

      Patrick, just for some context on corp tax rates & the loopholes exploited:

      in 1961 the percentage of corporate profits paid in taxes was nearly forty-one; now it is less than eleven.

      • Patrick

        Without looking it up, I’m guessing our economy is about a zillion times bigger than it was than, too. To repeat: I’m on the side of getting rid of all loopholes (corporate, green energy, etc.).

  • http://finalinsurrection.blogspot.com/ Lock Rutledge

    Yawn……

  • Pingback: Biggest Problems: Money in Politics

  • seth c

    Our system is flawed if we begin with a high tax rate and then give incentives so that corporations don’t innovate but instead drive towards such incentives.

    Ideally, it would be best to a. lower the corporate tax rate and b. get rid of most of the loopholes.

    The only loopholes that we really need is for emerging technologies and companies that are trying to enter into the marketplace but has a high barrier of entry.

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