Read

Search form

Making the Case for Doubling the Corporate Income Tax

Making the Case for Doubling the Corporate Income Tax
Tue, 1/14/2014 - by Paul Buchheit
This article originally appeared on Nation of Change

A recent New York Times Op-Ed by economist Laurence J. Kotlikoff suggested that we "Abolish the Corporate Income Tax." His case for doing so, he explains, "requires constructing a large-scale computer simulation model of the United States economy as it interacts over time with other nations' economies." The computer determined that the tax cut would be "self-financing to a significant extent."

Big business hints at serious consequences if we don't comply with this lower tax demand. But abolishing the corporate income tax is not likely to reverse the long history of harmful corporate behavior. There are several good reasons why:

1.Corporations Have a Proven Record of Spending Tax Breaks on Themselves

The evidence comes from 2004, when a "repatriation holiday" allowed corporations to bring their profits home at a much-reduced tax rate. But they used over 90 percent of the money to "enrich shareholders and executives" by paying dividends and buying back their own stock. At the same time, they cut jobs and research spending. A Senate subcommittee called the whole affair a "failed tax policy" that shouldn't be repeated.

The increasing level of stock buybacks epitomizes the transition from corporate responsibility to corporate self-indulgence. Stock buybacks are a means by which major corporations seek to manipulate the market prices of their own shares, thereby enriching executives with plentiful stock options.

The buyback surge is dramatic. In 1981, 292 major corporations [spent less than 3 percent}(http://www.alternet.org/economy/154746/how_high_ceo_pay_hurts_the_99_per...) of their combined net income on buybacks, but by 2007 the very same 292 corporations were spending over 82 percent of their net income repurchasing their own stock.

2.They Only Pay Half of Their Tax Obligation

Mr. Kotlikoff claims that "the United States may well have the highest effective marginal corporate income tax rate of any developed country." But the effective rate in the U.S. is not high at all, and it keeps dropping. For over 20 years, from 1987 to 2008, corporations paid an average of 22.5 percent in federal taxes on their profits.

Since the recession, this has dropped to an outlandishly low 10 percent—even though their profits have doubled in less than ten years. Even taking into account IRS figures that reduce taxable income to about two-thirds of profits, their 10 percent tax rate increases to only 15 percent. They should be paying over twice as much.

U.S. Office of Management (OMB) figures confirm the steady decline in Corporate Income Tax as a Share of GDP, from 4 to 6 percent in the 1950s to 1 percent in 2009, and then back to 1.6 percent in 2012. Today's rate is less than one-half of what it was in our country's most productive era.

3.They've Stopped Investing in America

The Bureau of Labor Statistics (BLS) provides job data by size of business. A review of job gains and losses reveals that since the recession:

– Almost 4 million jobs have been lost, almost all at companies with less than 50 employees or more than 1,000 employees.

– Only 2 percent of the jobs were lost at medium-sized companies (100 to 999 employees).

While small companies have been hit hardest by the recession, large corporations have continued to accumulate massive profits, and yet they're not using their immense gains for new initiatives. A stunning graph from the St. Louis Federal Reserve shows that business is investing much less in America. Instead, as a National Bureau of Economic Research study confirmed, startups and young firms are of primary importance to U.S. job creation.

4.Their Vision of Tax-Free Prosperity is a Delusion

Mr. Kotlikoff cites the "Irish Miracle" of the 1980s, which led to "a massive inflow of capital, with over 1,000 multinationals setting up shop." The authors of a New York Times article explain, "Simply put, the Irish miracle was a mirage driven by clever use of tax-haven rules and a huge credit boom that permitted real estate prices and construction to grow quickly before declining ever more rapidly." In other words, a bubble.

Without tax revenue, Ireland turned to austerity measures, some of the toughest in Europe, while the wealth of the boom years flowed upward to a small minority. The process should be familiar to us. Paul Krugman notes that Ireland collapsed "By being just like us, only more so. Like its near-namesake Iceland, Ireland jumped with both feet into the brave new world of unsupervised global markets."

U.S. corporations need to pay for the many years of employee productivity and public research that built their trillion-dollar industries. Perhaps a minimum tax on U.S. income, or a return to the public on their use of infrastructure and government research, or a minimum investment for job creation. But reducing their taxes would just legitimize their refusal to meet their obligations.

Originally published by Nation of Change

Add new comment

Sign Up

Article Tabs

Bay Bucks, alternative currencies, barter economy, alternative economic systems, Chong Kee Tan, community resilience, sharing economy, Swiss WIR

The Bay Area currency operates a commercial barter system – where businesses with unused inventory or excess capacity "deposit" their excess into an exchange, and “withdraw” other businesses’ excess goods and services instead of money.

climate crisis, climate information, Climate Feedback, accurate climate coverage

Climate Feedback brings together a global network of scientists who use a new web-annotation platform to provide feedback on climate change reporting.

Black Lives Matter, ACLU of Oregon, state surveillance, surveillance programs

Monitoring the social media use of BLM activists is an example of "how the level of trust between law enforcement and communities of color has been so damaged," the civil rights group says.

Panama Papers, tax avoidance, tax shelters, corporate tax evasion, Oxfam

The names on the list of "Broken At the Top" are like a who’s who of big business – and some of the headline figures are simply staggering.

act out, occupy, spoken word, poetry, Harriet Tubman, 20 dollar bill, money in politics, regulation, cost benefit analysis, human life, cost of life, value of life, Public Citizen, Amit Narang, corporate accountability, corporate malfeasance, May Day, Int

This week, regulation is the name of the game if you want to hold corporations accountable and keep them in line with the interests of people and planet. Sadly, there's one serious hurdle standing between us and regulation.

migrant crisis, East African migrants, migrant smugglers, organ trafficking

A week ago, on April 17, 400 East Africans drowned in the Mediterranean Sea after their boat capsized on the way to Italy – and when the numbers get this big, we forget that they are individual lives being lost, like this, every day.

Posted 4 days 2 hours ago
Panama Papers, tax avoidance, tax shelters, corporate tax evasion, Oxfam

The names on the list of "Broken At the Top" are like a who’s who of big business – and some of the headline figures are simply staggering.

Posted 1 day 19 hours ago
British academies, privatized education, lower teaching standards, low teacher pay, National Union of Teachers, Anti-Academies Alliance

“It is a complete bonfire of pay and conditions," said David Gilchrist of the Anti-Academies Alliance, who claims the government has "no evidence to back up the claim that academies improve educational standards – in fact the opposite is true."

Posted 2 days 20 hours ago

In recent weeks, thousands of people marched and were arrested on the steps of the Capitol demanding that the people’s voice be heard: that we the people, not money, be the driving force of our government.

Posted 4 days 2 hours ago
solar energy, rooftop solar, California clean energy policies, National Renewable Energy Laboratory, carbon emissions, San Francisco solar policy

Starting Jan. 1 of next year, new commercial and residential buildings here up to 10 stories high must install rooftop solar systems for heat or electricity – making San Francisco the first major U.S. city to enact such legislation.

Posted 4 days 2 hours ago

In recent weeks, thousands of people marched and were arrested on the steps of the Capitol demanding that the people’s voice be heard: that we the people, not money, be the driving force of our government.

With more than 1,300 people arrested on the steps of the Capitol earlier this month, the Democracy Spring campaign pulled off one of the largest acts of civil disobedience this century.

solar energy, rooftop solar, California clean energy policies, National Renewable Energy Laboratory, carbon emissions, San Francisco solar policy

Starting Jan. 1 of next year, new commercial and residential buildings here up to 10 stories high must install rooftop solar systems for heat or electricity – making San Francisco the first major U.S. city to enact such legislation.

migrant crisis, East African migrants, migrant smugglers, organ trafficking

A week ago, on April 17, 400 East Africans drowned in the Mediterranean Sea after their boat capsized on the way to Italy – and when the numbers get this big, we forget that they are individual lives being lost, like this, every day.

British academies, privatized education, lower teaching standards, low teacher pay, National Union of Teachers, Anti-Academies Alliance

“It is a complete bonfire of pay and conditions," said David Gilchrist of the Anti-Academies Alliance, who claims the government has "no evidence to back up the claim that academies improve educational standards – in fact the opposite is true."