By Jerry A. Boggs | April 19, 2009 | Updated December 30, 2014
“America’s corporate income tax rate, at 35%, is the highest in the world.” -John Steele Gordon, Wall Street Journal, December 30, 2014
One way he can do that is to eliminate corporate income tax.
But this would be too risky a move even if Obama were a right-wing Republican. Most people seem to regard the idea as unacceptable if not immoral. The thinking is that to make up for the revenue lost after eliminating corporate income tax, the government would have to increase taxes from individuals, burdening them unfairly — the opposite of the tax relief Obama has pledged to seek for 95 percent of the taxpayers.
But instead of raising taxes on individuals, the government could choose to recoup its revenue loss by cutting pork and other spending on some of its senseless programs, such as subsidies to tobacco companies, as well as paring down components of the military where practical.
For the sake of an argument, though, let’s assume the government, to make up for the difference, chose only to raise income tax on individuals.
First, the tax increase would be less than is believed. One reason is that corporations pay less tax than is believed — they currently pay about 17 percent of all U.S. taxes — because of loopholes, write-offs, tax credits, and “creative accounting to ‘lose money’.” Many firms pay very little tax, and according to a study by the Government Accountability Office, from 1998 to 2005, “about a quarter of large corporations — ones that had more than $250 million in assets or $50 million in gross receipts — paid no tax.”
Another reason the tax increase to individuals would be less than is believed is that after abolishing corporate tax, the government would need less revenue overall than it needs now. Each year the IRS spends millions on a vast army of employees whose sole function is to monitor, audit, keep records on, prosecute, and collect from corporations. Many others on the IRS payroll take part in planning, writing, editing, and printing countless manuals on how to do all this. As our economy grows, so does this well-paid army and the bill to the taxpayers. Get rid of this costly collection leg of the IRS, and the government’s bill to taxpayers every April 15 would be smaller.
“The United States has the world’s highest corporate income tax rate at up to 35 percent. Japan recently lowered its corporate tax rate to 30 percent, and some US companies are moving operations to countries with lower rates such as Ireland, where the corporate tax rate is 12.5 percent. After various tax deductions and credits, the US collected $205 billion in corporate income tax in 2009 from 5.8 million corporations, down from $228 billion the year before.” –FacethefactsUSA.org
Second, if we truly think our competition-based economy works to the betterment of all, we must believe this:
Once the tax-paying corporations have the extra money gained from a tax elimination — and from the high salaries no longer paid to their tax lawyers and accountants, expenses now passed on to consumers — most would then lower the prices of their goods and services in response to the forces of competition. Corporations would also expand investments and create new jobs. They would do all the things a corporate tax structure is said to now induce them to do with “tax incentives,” credits toward taxes the government should not be asking for in the first place.
Each year 6.1 billion hours are spent complying with the tax code. This is equal to the work time of 3 million full-time workers, making tax compliance one of America’s largest industries. Is there time for Congress to reduce this waste of time? –Columnist George Will, Washington Post, August 9, 2013
All this represents a gain for taxpayers (and for the poor who don’t pay taxes). In other words, the approximately 17-percent extra income tax that taxpayers might pay if corporate tax were eliminated would return to them in a roughly comparable decrease in prices and in an increase in jobs, the latter offsetting the loss of jobs now attached to the corporate tax industry.
If President Obama wants to help taxpayers, he ought to resist his Party’s pressure and look at whether corporate taxes do what they are allegedly supposed to do, such as harness corporate greed, now in unfettered abundance, and lighten taxpayers’ burden. Obama should then gradually phase out this tax, to the benefit of everyone.
“Why We Should Eliminate the Corporate Income Tax,” by Megan McArdle, The Atlantic
“The corporate income tax encourages firms to waste resources on tax avoidance In general, taxes are most efficient when they fall on those who have the most difficulty avoiding them. Big corporations can and do spend an enormous amount of money and human effort transforming their income into more tax-preferred forms — deferring it, moving it, swapping it with entities that have different tax rules, and so forth. We spend an enormous amount of energy trying to make rules to stop them. It would be a lot easier to get rid of the thing entirely and focus on getting the money from people, who can’t afford quite such large squads of tax attorneys. This would also correct an obvious flaw in the corporate tax code: it’s easier for big companies to afford pricey tax lawyers — and pricey lobbyists to get them special tax breaks.”