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

[stewstewstewdio.livejournal.com]

That's an easy statement to make when the economy is in a slump. Hence the quote of tax revenue from corporations in 2010. A lot of corporations were showing huge losses then. And since corporations are taxed on profits, not on income like people are, many corporations paid no taxes at all.

It would be interesting to see how much tax revenue was generated when the economy was raging.....say 1996. I tried to look that up quickly, but didn't find any answers. Maybe somebody can find it.

[badlydrawnjeff.livejournal.com]

When the Bush tax cuts went through, there was a provision to get back some of the overseas money. That jump brought it to $250b in 2006 (http://www.nytimes.com/2006/07/09/washington/09econ.html?pagewanted=all), and I've seen somewhere that it was closer to $400b in 2007. I don't think that number really changes much in regards to it being worth the trouble of collecting, considering the externalities.

[stewstewstewdio.livejournal.com]

That $250 billion is for a 9 month period. Projected for an entire year, that comes out to a little less than $350 billion. Considering the entire year's income tax revenue was around $972 billion from everybody, that would put the corporate income tax receipts to over a third of the total. That would seem to be very much worth collecting.

[badlydrawnjeff.livejournal.com]

A fair point. So let's collect it if we need it - are we better off laundering it through corporate taxation, or more directly?

Apologies for the earlier issue - I clicked a wrong button.

[politikitty.livejournal.com]

The amount of tax revenue is something of a red herring.

All costs of business are ultimately borne by the consumer. If the consumer will not pay the cost, wages might be cut, expansions might be revoked, locations might be closed, profits might fall. The ultimate cost will be paid by the people with the least negotiating power. Either because they really really want to buy an iPad (best case scenario), or because they can't afford to move and need to eat the rent increase.

I don't understand why anyone would think corporations would actually allow their profit to bear the incidence of the tax. Profitability is a way that businesses signal credit-worthiness and attract investors. So while some of the tax will surely be paid by the investors, it will be after all other cost maximizing strategies have been avoided.

So a corporate tax is basically ceding control to corporations to decide who deserves to pay taxes. When one of the great things about the income tax is that we can say "hey, you, person who can't make ends meet. You deserve to pay a lower rate than this fat cat over here."

I mean, it's an amazing anti-poverty tool that levels the playing field. Why would we give that up?