Saturday, June 21, 2008

Eliminate corporate taxes

Corporate income taxes are counterproductive for several reasons. There are only three things a corporation can do with the money it takes in: it can spend it on goods and services, it can return it to shareholders, or it can give it to the government as taxes. This last option is the least good for the economy.

They represents only about 14% of government receipts in the first place, but the rate US corporations pay is among the highest in the world, which reduces US competitiveness and tends to drive prices higher. We’d be far better off if that money – about $370 billion last year – were spent on more goods and services, or were paid out as dividends to individuals or mutual funds, where taxes will then be paid.

The second reason to do away with them is that they are hugely inefficient. Since corporations hate to pay them, they employ tens of thousands of lawyers and accountants whose sole purpose in life is to find ways to avoid paying those taxes. In turn, the government has to employ similar numbers to fight the corporate suits. But the corporate guys have bigger budgets and hire the smartest of the smart, and more of them. They set up foreign holding companies and offshore operations that further damage the US economy. It’s a battle in which the government is always playing catch-up and the corporations are playing the four-corner defense. Cases drag on for years. Millions get spent on both sides in non-productive activities that drive both corporate strategy and government policy in directions they would not otherwise take because of this endless game of hide and seek.

Corporate taxes also foster corruption. Corporate taxes are not the only reason we have lobbyists, but they are a major contributor. Business and industry sends lawyers and lobbyist to Washington and state capitals around the country in an effort to shape public policy, and to even write legislation, in order to minimize the tax consequences to their paymasters. I don’t know if you’ve noticed. But occasionally one of those lobbyists will even cross the line and procure liquor, drugs, sex, and even cash, for legislators who are willing to play ball with them. Even when no laws are broken, the lobbyists have become critical players in the financing of election campaigns for the same people who write the laws -- probably not what Jefferson, Adams el al had in mind.

Finally, the whole thing is a sham. Politicians use business as a shell game to hide taxes that only real people can pay. After all, if you own stock, mutual funds, an IRA, 401-k or have a pension plan, these taxes are coming out of your pocket in the form of reduced profits; and even if you don’t, they cost you in the form of increased prices and decreased honesty in government.

Doing away with corporate taxes will increase US competitiveness, increase investment, will make it easier to increase wages, decrease prices, and hire more people. It will force some lawyers and accountants to find honest work, and will reduce the influence of lobbyists and business with politicians and legislators. All in favor, say: “Aye!”


jb said...

AYE!!!! If you haven't already, you should read "The Fair Tax" book.

d'blank said...

One vote for? I'm crushed.

Anonymous said...

Sounds reasonable the way you put it, but it's really not. Yes, the government is inefficient foolish and corrupt. But it represents ordinary people on some level, while corporations represent on zero levels. What's more they are naturally better able to represent their interests to the govt via lobbyists than individuals are. A little tax burden is a minor compensation for that. Finally, corporations will lobby aggressively no matter what. The idea that we reduce corporations and they will be less intrusive in government is a fever dream at best. And having corporations pay no tax does not mean a windfall for consumers. The price of toothpaste would not fall. However, the compensation of CEOS would almost certainly rise.

d'blank said...

I'm so happy to have a comment on this that I hate to disagree, but I must.
Having a corp tax creates the corp system for lobbying and give immediate need to fund it. Taking away the tax won't eliminate lobbying, but it will lessen it. The savings may not lower prices and it might raise CEO pay, but CEOs will then pay more taxes are they are less adept at avoiding them.
It won't be a perfect system but it will be better.