Why a Corporate Tax Rate at All?

[badlydrawnjeff.livejournal.com]

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?

Comments

[fizzyland.livejournal.com]

Companies in the United States pay almost half the taxes that companies in other rich countries pay

I think we're done here and if you disagree I will have to refer to you as a "lunatic" that refuses to take an "adult" approach to the issue of taxes.

[badlydrawnjeff.livejournal.com]

Where is that quote coming from?

[kayjayuu.livejournal.com]

I was wondering the same thing.

[badlydrawnjeff.livejournal.com]

I was wondering if I mistyped something, but nothing even comes close to that. Weird.

[fizzyland.livejournal.com]

The WP piece - your first link.

[the-rukh.livejournal.com]

"Companies in the United States pay almost half the taxes that companies in other rich countries pay, compared with the size of the economy, according to the Organization for Economic Cooperation and Development."

[politikitty.livejournal.com]

That is so patently false (http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/Special-Reports/Paying-Taxes-2012.pdf). America pays a Total Tax Rate of 46.7%, while the EU average is 43.4%

As someone who makes their living dealing with the large amount of business taxes that don't fall under the heading of "Federal Corporate Income Tax", I hate that this intellectually weak argument gets passed around.

[badlydrawnjeff.livejournal.com]

It never dawned on me that she was making that as a statement, I had read it as something I had said. That makes sense now.

[a-new-machine.livejournal.com]

Even if you're only counting the corporate tax, it's roughly the same as most other countries (http://www.nytimes.com/2011/05/03/business/economy/03rates.html). FTA: "But by taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries." Certainly not "half."

[fizzyland.livejournal.com]

Take it up with the OECD - it's their calculation.

[politikitty.livejournal.com]

It's not their calculation. It's an unsubstantiated remark that relies on any number of unspoken assumptions. Does it consider only the federal corporate income tax? If so, it's missing out on about 75% of business taxes in the United States. If it's referring to the low tax collection as a percentage of GDP, there's an entire myriad of distortions there from cultural tax appetite to differing factors of GDP.

If I had 91 dollars to send the OECD, I'd gladly find out. In the meantime, I gave the The World Bank's analysis on tax rates complete with their methodology. As far as I know, the OECD has not criticized these numbers or find them to contradict with their findings in the slightest.

It bothers me that people drastically underestimate the amount of taxes, and the cost related to that compliance, any given American corporation pays. Facts are facts, and ignoring them because they're inconvenient is just bad news. But in the end, it doesn't matter if America is keeping up with the tax-Joneses. It doesn't mean that corporate taxes are good. They're highly distortive and regressive in nature. The rich can throw away money and laugh about the waste. But this actually means less jobs and higher prices. While it sounds very boring and dry to you, these are indirect causes of the exact sort of poverty and harm that you're supposed to have a soul to worry about.

So even if that's what Europe has, that doesn't follow that it's what America should strive for.

[fizzyland.livejournal.com]

I was going by the info in the Washington Post article - that was a direct quote from it.

[politikitty.livejournal.com]

Exactly. It has very little context and could have a myriad of different implications or explanations. It's lying with statistics, and I take issue with you taking that quote and thinking it is such an important factoid it should effectively shut down discussion about corporate taxation.

You were the one who said "I think we're done here and if you disagree I will have to refer to you as a "lunatic" that refuses to take an "adult" approach to the issue of taxes"

[fizzyland.livejournal.com]

That's a reasonable complaint on your part.

I have an issue with the OP that colored my response - had anyone else posted this topic I would have simply answered that I support some level of corporate taxes, albeit with a combination of reduced rate and closed loopholes.

[the-rukh.livejournal.com]

You're attacking taxes PAID to the federal government with a number that includes total cost burden of paying the taxes to the company, which is a different number. Things like simplifying tax code reduces cost of paying taxes without reducing taxes paid(unless specifically reduced by the calculation).

So calm down. The OECD isn't a bunch of stupid heads just because you are using a different measurement than they are. Calling something "intellectually weak" is a fairly week argument anyways.

What the doingbusiness.org survey is actually critical of is how much of total tax burden actually goes in to taxes paid, and how much of it is waste. Hence why they go in to such detail on things like electronic filing, number of payments that have to be made, corruption, etc.

What we find is that yes, the US PAYS to the government about half the rate of other countries, but because of our inefficient tax system, we're about average when it comes to cost to companies.


It also has an interesting subsection on how VAT taxes are more inefficient to pay than corporate taxes.

[politikitty.livejournal.com]

Actually it doesn't. The rankings are weighted to equally consider total tax rate, cost to comply and number of required filings and payments. But table 4 has only the Total Tax Rate. It uses all levels of business taxes, rather than the limited Federal Corporate Income Tax, which we know is less than 25% of any American corporation. Fizzyland makes the assumption that there can be no "adult" conversation about corporate taxes because of a statistic of questionable importance.

Working in Sales and Use Tax, I'm well aware of the limitations and costs of a consumption tax. I'm glad the issue is finally getting press. I've long said that while consumption and income tax bases are theoretically equivalent, the cost of compliance is necessarily higher.

That is wholly unrelated to my concerns of the corporate tax. It's indirect and takes away the right and duty of a government to enforce progressive tax equity.

[the-rukh.livejournal.com]

But you agree with my statement that the two numbers are different and so the number he quoted is still correct, yes? And that calling it some sort of "intellectually weak" (fancy words for stupid head) argument is really not useful because of that?

The fact is, as far as the deficit is concerned, the "total tax" really doesn't help the government any at all. Also, raising the actual tax rate doesn't make the total tax go up in huge strides, just a bit.

So we're still working with two issues and two needs. One is the burden on the company. Modernizing and simplifying tax code is a great way to reduce that burden without directly impacting our deficit. We really could actually raise our corporate tax rate (again, functionally lower on income than the rest of the world) while reducing the overall burden to companies.

[politikitty.livejournal.com]

He quoted no number. He implied that his statistic is so striking that it should effectively end discussion on a corporate tax rate.

Low income countries tend to rely more heavily on indirect taxes because they lack the political will to tax the people directly. This might be because it's difficult to get accurate records from the average person to guarantee compliance, or that the population is vocal enough to fight off direct taxation. But a high corporate tax rate actually corresponds to a weak and poor economy.

That the United States has the lowest effective tax rate is actually a good indicator of the health of a nation. But once you consider all levels of government, the United States doesn't have the lowest effective rate. It's higher than most of Europe.

So if the tax as defined by [corporate taxes]/[GDP] is higher in Europe than America, that implies that corporate profits are actually a small amount of our GDP. Perhaps because our salaries are higher (objectively true), we have a higher labor participation rate (objectively true), we have a lower rate of natural employment (possible, but debatable) or some other mechanism. But it isn't because we have a lower tax rate, and that deserves some conversation.

There are all sorts of reasons his statistic doesn't matter, even if it is true. He was the one saying I needed to take my objections to the OECD.

[the-rukh.livejournal.com]

He quoted no number. He implied that his statistic is so striking that it should effectively end discussion on a corporate tax rate.

I know, I'm not talking about that. I agree he was somewhat overly antagonistic in his approach.


That the United States has the lowest effective tax rate is actually a good indicator of the health of a nation.

That seems pretty nonsequiter, when we had some of the strongest growth we had ~50% actual tax rate. I'm betting by total tax that would have been upwards of 70%. There's no reason to declare by fiat that low taxes = strong growth. There's a million other things that are much stronger indicators and also effect it strong-er-ly.

This doesn't say automatically that higher taxes do not have an effect on corporate growth, and they probably do have an impact, but as we can see from the facts, it is not the primary cause and effect.

There are all sorts of reasons his statistic doesn't matter, even if it is true

It very much does, but it matters specifically for government income and giving the government ability, like other countries, to implement the programs that are not ideal for a market-based approach, such as highway systems and healthcare.

You took a very specific approach to "what matters" that happens to not be everything that matters and then criticized everything else using only the causes and effects on that specific issue. I know that taxes are kind of your thing and people have a habit of looking at their thing and seeing the rest of the world through that lens and only that.

[politikitty.livejournal.com]

Early America relied entirely on tariffs and business taxes and has evolved towards more direct taxation. There is a correlation with poor nations and indirect taxation. So a large amount of indirect taxation is not immediately a good thing. Poor nations also have higher growth rates because, uh, they're poor. And it's easier for China to double their National income when they just have to raise it from 4 grand a person to 8. At 50k a household, that 4k growth doesn't look so impressive.

So everything you're saying is true without being obviously useful.

You still fail to realize that I'm not talking about Tax Revenue. I'm talking about Tax Incidence.

Tax revenue relates to the ability for the government to pay for the services it has.

Tax incidence relates to who pays the tax. A corporate tax is not paid by the corporation. It's paid by other people. While an indirect tax is still a tax and we can extract the tax revenues needed, we also lose the ability to decide who has the ability to pay.

Do you trust a corporation to pass along zero tax costs to the poor, while shifting the entire tax rate to their investors or executives? I don't. Progressive taxation is something that I don't think we should give up. But America has. The Federal income tax is still going strong. But states get most of their revenue from regressive or indirect taxes. And the largest federal programs (social security and medicare) are regressive when you factor in the income cap.

The actual amount of revenue the government needs is immaterial to the issue of whether corporate tax is good or bad. It could be enough for socialized medicine and roads for everyone, or it could barely provide minimal national security. That's a separate discussion, and one where I'm much closer to your position than you seem to think.

Corporate taxes, like all indirect taxes, are about equitable tax treatment. Tax distribution based on negotiation strength is inherently a bad idea when the entire point of Government is to augment the limitations of the market.