Reading this, I am sure you are thinking: "Am I in the right place? Who is writing this?" or "This is the stupidest thing I've ever read." Bear with me on this.
In my view, the corporate income tax has become a weight around the neck of the President, the Congress, the businesses to which it applies, on and on. That isn't to say the personal income tax or payroll taxes aren't a weight on the people that pay them. The problem is the corporate income tax isn't worth its weight.
In fiscal 2010, the corporate income tax made up only 9% of total federal revenues. Think about that: $2.2 trillion in total revenue and only 9% of it came from the tax that, depending on who you talk to, is either way too high compared to the rest of the world, far too complex, a job-killing disaster or not doing ENOUGH to make corporations pay their fair share. Well, despite Mitt Romney assertions to the contrary, corporations are NOT people. (And he's not my friend, either). People pay taxes...and ultimately, they pay the corporate income tax.
The corporate income tax makes businesses do stupid, inefficient or unnecessary things. In economic speak, businesses stop being rational actors with respect to taxes. Just complying with the tax costs businesses billions. In my view, the corporate income tax actually ROBS the treasury of revenue. Companies put significant effort into accomplishing one thing when it comes to taxes: Minimizing the actual taxable income. The result is money is blocked from flowing through the economy in a clean way and it's the only viable monetary reason for keeping dividend tax rates lower than earned income--because dividend income is double taxed.
It's time to end the corporate income tax. Corporations (and all EMPLOYERS) will still pay significant amounts of tax--through their share of FICA, federal excise taxes and fees and their share of costs for unemployment and worker's compensation (although the last 2 are not technically taxes). That shuts down transactions whose only purpose is to shelter or minimize income. It reduces the need for business's accounting and finance departments to comply with the tax. It means more income will flow directly to investors through dividends.
In exchange, (oh, conservatives, you didn't think it was going to be as easy as "Poof! Eliminate a tax that's been around forever", did you?) all income receives equal treatment. Dividend and capital gains are taxed like ordinary income. There are valid and fair arguments to be made for why that income should be "incentivized", but I have never (EVER) heard a business owner or stock investor say "I only do this because the taxes are lower than working in a coal mine." Nonsense. Business owners start businesses to control their lives, to build something. Yes, that involves taking a risk. But they are taking that risk because the true incentive is it could turn into something huge and they can achieve financial freedom. Taxing some hedge fund's investments isn't going to stop hedge funds from investing. And realistically, nearly all true small business owner aren't paying the corporate income tax now and they are NOT paying today dividend or capital gain taxes on income related to their business, either. So taxing all income equally does next to nothing to the beloved "small business owner".
I know I'll get the arguments: "But their profits are HUGE. They should pay!" Yeah, ok. But the point is, they aren't paying NOW to begin with. Very large multinationals structure their income so it's earned internationally and then, they just never repatriate the income, leaving (essentially) untaxed anyway. Ending the corporate income tax allows a company to simply do what is best for the business. And profit? Profit in and of itself is meaningless to a large corporation. It doesn't let the corporation go on vacation with its kids or buy a vacation home in Vail. It's just a number. Ultimately, a corporation can really only do 3 things with its profit (essentially free cash): 1) nothing--it just sits around in a bank and that's just dumb. Look at Apple--eventually, the investors revolted and forced them to declare a dividend or to do SOMETHING with the cash; 2) return it to investors--whether it's a share buyback or a dividend, that money is forced back into the economy and into the hands of people--to either reinvest it if they sell the shares or do something with the dividend income--and that money will be taxed and paid by PEOPLE; or 3) invest it themselves: the company can expand, upgrade equipment, raise wages to improve retention...whatever. But at the end of the day, that money gets forced through the system as well. Right now, the issue isn't really the money that's taken out of the system via corporate income tax--it's the money that never SEES the system because it's saved, kept overseas or "spent" inefficiently through systemic costs.
Taxes are not bad. I like taxes. I like a progressive income tax. But taxing the same dollar twice (or more) is just wrong. It's inefficient and it's a disincentive. It's time to end the corporate income tax.
No comments:
Post a Comment