And The Counter Argument Is?

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Posted on : 9/13/2011 07:00:00 PM | By : Dann | In : , , , ,

Simon over at Classical Values is taking a look at response to a recent Sarah Palin speech.

That is all explained rather reasonably by what Palin said,“We have the highest federal corporate tax rate in the industrialized world. Did you know our rates are higher than China and Communist Cuba?”

The essence of the plan is to attract businesses to America by making America the best place in the world to do business. It seems like a good idea to me.
 Ahem....me, too!

I would gladly entertain a logical counter-argument for eliminating the corporate income tax.




Corporations do not pay taxes.  Period.  They pass them along to their customers in the form of higher prices.  Or they cut pay/benefits for their employees.  Or they move manufacturing overseas to limit the profits subject to the U.S. income tax.

However they address the issue, they do not pay income taxes.  They make them part of their budget and business plan.  If they can't make a profit, then they their aren't liable for income taxes.  Eventually they will go bankrupt.

Or practice crony capitalism by lobbying Congress for "special" tax credits that can be used to offset any taxable income.  But that is an issue for another day.

What the income tax does do to corporations is to force them to spend hundreds of billions of dollars in tax compliance.  Accountants....tax lawyers...managerial documentation....it all costs money; a lot of money.

The result, as Simon notes, is that large corporations structure their businesses so that they pay very little in income tax.  Small S and J size corporations end up paying the bulk of those taxes.  Mostly because those small companies do not have an international work force.  Unless you count the immigrants picking fruit and vegetables on their farms. 

So small employers that are our single most valuable resource for creating jobs end up paying the most income taxes.  If we truly are focused on 'jobs', then doesn't it make sense to ease the tax load on the entities creating the jobs?

Eliminating the corporate income tax also creates the opportunity to 'fix' the problem of differential tax rates for investments.  Currently, stock dividends are taxed at a lower rate than 'earned' income.  The reasonable justification for this difference is that corporations pay corporate income taxes on money used to pay dividends.

If we eliminate the corporate income tax, then we can treat dividends as the same as other forms of income and tax it all at one common rate.  We can also simultaneously reduce the need for corporate donations to political campaigns.

This creates an incentive for U.S. corporations to earn profits within the U.S.  Those profits are then either re-invested in the company or paid out as dividends to investors.  If the "re-investment" means higher wages for corporate officers (and hopefully others), then the profits get taxed one time as "income".  However the profits get allocated, they either become taxable income for a person, or they create jobs for Americans.

And that is still the objective, right?

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