talkpolitics | Why a Corporate Tax Rate at All?

Today, President Obama unveiled his latest plan to reform the corporate tax structure. I'm not too curious about the community's thoughts on this overall since I'm fairly sure we all know where we all sit on Obama making good/bad choices here, but I do have a more general question:

Why have a corporate tax rate at all?

I'd like to think we all agree on these basic points:

a) The corporate tax rate is not really paid by the corporation or business in question. Taxes are simply another cost that is levied on a company, a cost recouped through fewer services, lower wages/employment, higher prices, or some combination therein. It's not an issue of "fair share," really, since we're all paying it.

b) Our corporate tax rate is comparatively high when stacked up against other nations. We're #1 in the OECD at 35%. Canada, directly to our north, is at 15%. And that's without factoring in the corporate tax rates of individual states. Whether you think this matters much is up to you.

c) We only tax profits, and that's proper: If a company doesn't make a profit, it's not paying that tax rate. It's one reason why many corporations don't end up having a tax obligation.

d) We offer a lot of tax credits and opportunities to lower the effective rate: From green energy tax credits to employment credits, even profitable companies are able to reduce their effective rate to zero - or lower.

e) Corporate taxes account for a fairly small amount of overall receipts: Well under $250b in 2010.

So the question I pose is this - if you're in favor of a corporate tax at all, why? Is it worth it given what we all know and agree on? Is the value of getting $220b in revenue from the corporations worth it?

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So the government should be able to freely enter and search and seize files willy nilly from a corporation?

There are a lot of implications there I don't think you're considering.

Oh, of course not. This is political masturbation, for lack of a better term. :P

Just to clarify a bit more, I think corporations need to give something up if they want special treatment. They're taxed because they benefit from the services that society provides for them (law enforcement, courts, military, highways, social care programs, etc). Otherwise, cutting their tax rate is essentially another act of corporate welfare. Obama has been criticized to no end about this. I've had to deal with conservatives and their GM wank since I bought my Volt, so I'm not sure how those with this mindset can rationalize this.

Edited 2012-02-23 00:56 (UTC)

They're taxed because they benefit from the services that society provides for them (law enforcement, courts, military, highways, social care programs, etc). Otherwise, cutting their tax rate is essentially another act of corporate welfare.

But seeing how those of us who benefit from the corporations are the ones ultimately paying that tax, doesn't it just make more sense to tax us a little more if we're that desperate for that money?

We're just trading one tax for another in that case.

Maybe so - I think we can do without it completely. But consider the difference: if we went to 0 right now, other nations would either have to follow our lead or risk their own companies that incorporate there to come here. If we're not clawing back foreign revenues that don't belong to us, we might see some of it reinvested here. Isn't the possibility of expanding the tax base here to make up that gap worth exploring from a competitive level?

Like I said originally, I'm all for reducing or eliminating corporate taxes, but I think they should give up something in return. Whether it be electoral influence, or something else, they're still getting preferred treatment from the government. They already have lopsided influence, so getting even more wouldn't sit well with the public. There would have to be concessions.

On a side note, let's talk about unintended consequences. What would other countries do in retaliation for forcing them to cut their tax base to remain competitive? While they couldn't do much militarily, they could certainly do economic harm to us. We have a massive economy, but smaller economies could theoretically be devastated by this.

On a side note, let's talk about unintended consequences. What would other countries do in retaliation for forcing them to cut their tax base to remain competitive? While they couldn't do much militarily, they could certainly do economic harm to us. We have a massive economy, but smaller economies could theoretically be devastated by this.

A fair point. Do we see a lot of that with corporate tax rates, or more on the tariff side of things? I don't know the answer.

Neither do I. Maybe one of our resident economics experts can weigh in.

But consider the difference: if we went to 0 right now, other nations would either have to follow our lead or risk their own companies that incorporate there to come here.

What competitive advantage do we get by enticing companies to incorporate here?

I think, for this to make any difference at all - so that we don't just give Delaware a reason to build thousands more post office boxes - we'd have to condition the low low corporate tax rate on having substantial business operations in the United States.

Delaware actually has a gross receipts tax precisely because most of the corporations domiciled there don't have substantial business operations. A company incorporated in Delaware doesn't necessarily have profit sitused to Delaware. A company incorporated in America would not get the zero rate until they moved substantial business operations to America.

The company I work for is incorporated in DE, but most of our tax obligation goes to CA where we have business operations.

Why a Corporate Tax Rate at All?

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