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

This week, the ice is melting, sea levels are rising and science denying psychopaths are steering the canoe.

Noam Chomsky, Donald Trump, demagogue, Republican Party control, climate catastrophe, American militarism, fascism

Some years ago, the public intellectual warned that the U.S. was ripe for the rise of an authoritarian figure. Now he describes the threat Trump poses to the planet.

Dakota Access Pipeline, Standing Rock, Alex Garland, North Dakota, Standing Rock Sioux tribe, Standing Rock protests

Here are some of the faces from Standing Rock, in their own words.

Somali-Americans, Somali businesses, Abdul Razak Artan, Ohio State attacks, Somali activism

The Somali-American community was bashed last week after Abdul Razak Artan, a member of Ohio's large and growing Somali community, took part in a car-ramming attack and massive stabbing at the school that left 13 injured.

Dakota Access Pipeline, Standing Rock Sioux tribe, Standing Rock protests, DAPL

"We thank the tribal youth who initiated this movement. We thank the millions of people around the globe who expressed support for our cause. We thank the thousands of people who came to the camps to support us."

standing rock, oceti sakowin, lakota, cheyenne, sioux, north dakota, NoDAPL, oil pipeline, Army Corps of Engineers, wiyaka eagleman, eviction notice, veterans for standing rock, lake oahe, oahe dam, governor jack dalrymple, blockades, sophia wilansky, rio

This week, in a special episode, we dig into the latest news from Standing Rock.

Posted 6 days 21 hours ago
Dakota Access Pipeline, #NoDAPL, Standing Rock Sioux tribe, Standing Rock protests, Fort Laramie Treaty, Barack Obama, U.S. Army Corps of Engineers, Missouri River

Snow is slowing covering the encampment at Standing Rock, and despite an "emergency evacuation order" issued this week by North Dakota Gov. Jack Dalrymple, the Dakota Access Pipeline protesters aren't leaving.

Posted 5 days 20 hours ago
Austrian elections, populist movemens, rightwing populism, anti-Europe sentiment, Brexit, Donald Trump, Freedom Party, xenophobia

Norbert Hofer of the Freedom Party has a shot to win the presidency and become Austria's first right-wing head of state since the end of World War II.

Posted 4 days 21 hours ago
Dakota Access Pipeline, Standing Rock, Alex Garland, Bakken pipeline, North Dakota

Here are some of the faces from Standing Rock, in their own words.

Posted 3 days 19 hours ago
Somali-Americans, Somali businesses, Abdul Razak Artan, Ohio State attacks, Somali activism

The Somali-American community was bashed last week after Abdul Razak Artan, a member of Ohio's large and growing Somali community, took part in a car-ramming attack and massive stabbing at the school that left 13 injured.

Posted 1 day 2 hours ago
Fight for $15, living wage, minimum wage hikes, Service Employees International Union, protest arrests, Bernie Sanders, Donald Trump, overtime pay

Scores of demonstrators were arrested on Tuesday as U.S. fast-food and airport workers led nationwide protests for higher pay and union rights in their first major action since Donald Trump was elected president.

Dakota Access Pipeline, #NoDAPL, Standing Rock Sioux tribe, Standing Rock protests, Fort Laramie Treaty, Barack Obama, U.S. Army Corps of Engineers, Missouri River

Snow is slowing covering the encampment at Standing Rock, and despite an "emergency evacuation order" issued this week by North Dakota Gov. Jack Dalrymple, the Dakota Access Pipeline protesters aren't leaving.

Matteo Renzi, 5 Star Movement, Italian populists, anti-EU vote

Matteo Renzi resigned Sunday night after suffering a crushing defeat in a referendum on constitutional reform – signaling a fresh populist blow for the E.U.

democracies in decline, liberal democracy, Freedom House, Yascha Mounk, Roberto Stefan Foa, deconsolidation, anti-establishment politics, Journal of Democracy

Yascha Mounk, a lecturer in government at Harvard and author of Stranger in My Own Country, says liberal democracies around the world may be at serious risk of decline.

Dakota Access Pipeline, Standing Rock, Alex Garland, Bakken pipeline, North Dakota

Here are some of the faces from Standing Rock, in their own words.