Posts Tagged ‘corporate tax’
February 10th, 2012 at 8:26 am
Video: Tax Reform to Put Americans Back to Work
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In this week’s Freedom Minute, CFIF’s Renee Giachino discusses the dire need for meaningful tax reform – including lowering and simplifying the corporate tax rate – to make the U.S. more competitive in the global economy and put Americans back to work.

October 27th, 2011 at 9:57 pm
Re: Businesses Are Scared to Death
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Quin writes below, quite sensibly, that, when it comes to reforming the tax code, changing corporate rates should take precedence over reforming individual rates, reasoning that the economic anemia in private sector business is one of the largest obstacles to renewed growth. I find that analysis completely salutary, although I differ with him on a few particulars in the post.

First, Cain, Perry, and Gingrich all have corporate tax reform as a part of their plans. Cain, of course, would reduce it to 9 percent (although his addition of a federal sales tax would offset some of those savings). Perry would drop it to 20 percent, while Gingrich would take it down to 12.5 percent. As Quin notes, Santorum’s plan is quite good too, although I recoil a little at the fact that he eliminates the tax only for the manufacturing sector. There’s not a particularly good economic rationale for such differential treatment of industries under the tax code (not to mention that it’s a kissing cousin to the “picking winners and losers” criticism that the right has correctly embraced of late — although at least in this case it’s about who gets rewarded the most, not punished).  This leads me to believe that this section of the plan is politically motivated, aimed at boosting Santorum with blue-collar voters of the type that are essential to winning elections in labor-heavy states like his native Pennsylvania.

I’m also not convinced that passing personal income tax reform would be a heavier legislative lift than corporate tax reform, for reasons that Quin lays out. Personal rates are visceral and instantly understandable. Because there are several intellectual steps one has to go through to understand the effect of corporate rates on personal income, I think that may be the harder sell.

These are extraordinarily minor differences in the big picture, however. We all agree on the broad thrust of the argument: without flatter, fairer, more transparent taxes, America will be unnecessarily suppressing the ingenuity that could lead to an economic renaissance. But that change won’t come unless the keys to the White House change hands in January 2013. That’s just one more reason why next year’s election is so vitally important.

October 27th, 2011 at 12:27 pm
Businesses Are Scared to Death

Ashton asks me if I know of businesses eager to expand. The answer is no. Or, rather, “Bleep no!” And today’s news about the dollar falling even farther will worry them even more. Obama regulatory policy, Obama/Reid fiscal policy, and Bernanke’s recklessly inflationary monetary policy all have given businesses the willies. Now comes word that consumer confidence, already low, has fallen even more precipitously. Nothing will give businesses confidence until the leftists in the executive branch are gone.

That said, I agree wholeheartedly with the main thrust of Troy’s excellent column about tax reform — bold reform of individual income taxes is desperately needed, and Mitt Romney’s failure to propose such a thing is another horrendous mark against him — but I disagree that individual tax reform should come first in this horrid economy, and I disagree that only four people still have a chance to win the Republican nomination.  Individual tax reform, no matter how designed, will take tremendous time and effort to work through the legislative process, with all sorts of trade-offs along the way. And in this economy, the problem isn’t really coming from individuals, it’s coming from a failure of corporations to re-invest the mountains of cash on which they now sit.

All of which is to say that the best way to cut the Gordian knot, for the current economy, is to completely eliminate corporate income taxes in one fell swoop. Almost as good is to cut them in half, and eliminate them entirely for manufacturers, as Rick Santorum would do.  Which leads us to the failure to mention Santorum as a real contender for the nomination. A word to the wise: Check out his grassroots organization in Iowa. It’s the single best one to date.

Sure, voters are focused on how their taxes, not corporate taxes, will change. That’s why 9-9-9 proved so sexy. But they care about jobs as well, and if the sale is made right, they’ll see that the good jobs will come fastest from corporate tax reform, not individual tax reform. All Santorum need add when he’s discussing his tax proposal is that he has always supported various versions of the flat tax, that the idea isn’t anything new, and that so many off-the-shelf flat-tax plans have been out there for a quarter-century that the exact details don’t matter. He’s for a flatter, simpler individual tax code, period. But you don’t worry about income taxes if you don’t have a job, and a one-stop corporate-tax slash is the best way to achieve that.

September 23rd, 2011 at 10:39 am

A new coalition of major corporate executives has formed to push for a lower corporate income tax rate. Called RATE (Reducing America’s Taxes Equitably), the group has been rather vague about how much to cut the corporate rate, but the fact that an influential group is organizing at all is good news. As I have argued in person for four years and in print for at least 3 1/2 years, I think there is actually a good case to be made for not just reducing, but completely eliminating, the corporate income tax. Presidential candidate Rick Santorum, to his credit, goes almost as far, calling for cutting the rate in half in general, and completely eliminating it for manufacturers.  Megan McArdle at The Atlantic agrees with me that the whole thing should go.

But back to RATE, which isn’t so bold, but still is a valuable step in the right direction…. It really merits a full column, and will receive one here in the coming weeks. But as RATE notes at its web site, there really is no good political reason not to cut corporate rates, because leaders throughout the political spectrum have agreed it should be cut.  The problem, I think, is that they keep holding it in abeyance, wanting to include the corporate rate cut in some “grand bargain” that includes all sorts of other taxing and spending changes.

This is the wrong way to go about it. Grand bargains are almost always the wrong way to go about things. Better to do things cafeteria style selection by selection. If everybody agrees on something, go with it — especially if it is good policy. Good policies shouldn’t wait on extraneous matters.

Anyway, again, there is far more to be said for RATE. But for now, we should welcome this group to the table and thank it for coming. It’s a coalition that could do some real good.

July 5th, 2011 at 2:26 pm
How to Solve Investment Outflow

David Malpass and Stephen Moore have a great column at the Wall Street Journal about investment money flowing out from the United States rather than into the U.S. from abroad:

Americans are taking their investment dollars abroad at a faster pace than foreigners are bringing capital to these shores. In 2010, for example, U.S. investment abroad was $351 billion—$115 billion higher than foreign investment here. Economic recoveries are periods when investment capital usually surges into a country, but since this weakling rebound began in the middle of 2009 the U.S. has lost more than $200 billion in investment capital. That is the equivalent of about two million jobs that don’t exist on these shores and are now located in places like China, Germany and India.

One cause of this bad situation is federal over-spending:

Today, foreigners are financing food stamps and the next bridge to nowhere while Americans are building state-of-the-art production systems abroad. This is the real pernicious “crowding out effect” of the federal government’s borrowing.

But another big cause is high corporate income taxes, which make investment here far less rewarding:

Capital flows to where it is most highly rewarded, and low marginal tax rates on the returns to capital and business income create a gravitational pull on global funds.

Even former President Clinton says so:

“We’ve got an uncompetitive rate. We tax at 35 percent of income, although we only take about 23 percent. So we should cut the rate to 25 percent, or whatever’s competitive, and eliminate a lot of the deductions so that we still get a fair amount, and there’s not so much variance in what the corporations pay.”

But President Clinton doesn’t go far enough. For a long, long time I’ve argued that the corporate income tax should be eliminated entirely.
The problem, in short, is that nobody has any incentive to invest those dollars, or to lend them for investment, here in the United States. Eliminate the corporate income tax and, immediately, every American corporation becomes more profitable by as much as a third. All the pensioners who own stock in those companies get richer — immediately. All the workers with company stock-share plans get richer. Prices will drop as companies can make more money, net, even with lower prices. Companies also would save billions of dollars spent in tax-form preparation, and in time spent figuring out tax-avoidance schemes. The economy will get more efficient when tax considerations no longer distort decision-making.

Real interest rates will drop due to market forces (rather than through panicky fiats from the Federal Reserve Board). And, wonder of wonders, companies that have been moving operations overseas will now reverse course and race back within our shores — bringing hundreds of thousands of jobs with them. All of those complaints about “outsourcing” will end, virtually overnight.

That’s why this is one “pro-corporate” reform that also is overwhelmingly pro-labor. The Congressional Budget Office has noted that “domestic labor bears slightly more than 70 percent of the burden of the corporate income tax.”

At last measurement, the corporate income tax was taking in $195 billion per year. I argue that a large chunk of that would be recovered, even without the dynamic growth effects of the tax cuts, via near-immediate growth in dividends and capital gains and therefore in the taxes on those dividends and capital gains. I further argue that, under any reasonably dynamic analysis, especially one which takes into account the tremendous growth in tax revenues after prior cuts in taxes on investments, the economy won’t actually lose any money at all — but the whole economy will be stronger, jobs will be more plentiful, and even the ethics of Washington will be improved:

Indeed, it is all the mucking around in the weeds of the tax code and in the pig trough of spending earmarks that leads otherwise well-meaning congressmen to become favor-dispensers rather than statesmen. Without a corporate income tax to fool with constantly, a huge chunk of the grounds for favor-dispensation will be taken away.

So, again, eliminate the federal corporate income tax entirely. Doing so would go a long way toward completely ending the recession.