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Top 10 Reasons to Abolish the Corporate Income Tax--WSJ
Posted on 12/29/14 at 9:00 pm
Posted on 12/29/14 at 9:00 pm
Excellent opinion piece in the Wall Street Journal by John Steel Gordon.
A very good proposal that would dramatically improve economic conditions in the USA.
LINK
WSJ has an option to print this out so here it is in it's entirety.
A very good proposal that would dramatically improve economic conditions in the USA.
LINK
WSJ has an option to print this out so here it is in it's entirety.
quote:
America’s corporate income tax rate, at 35%, is the highest in the world. A rising chorus would like to bring it more in line with foreign rates, which average around 23%. I have a better idea—abolish the tax. The long-term benefits would greatly outweigh the short-term costs. And revenue from other sources, especially the personal income tax, would quickly make up for it and then some.
The corporate income tax has a curious origin. When Congress tried to tax the incomes of the growing number of wealthy Americans in the 1890s, the Supreme Court threw out the law as unconstitutional, calling it a direct tax. But the political pressure to tax the rich continued to mount. That’s hardly surprising as the rich were, indisputably, undertaxed at the dawn of the 20th century. Most federal revenue came from tariffs and excise taxes on certain commodities, such as liquor. Both are taxes on consumption, but they were also regressive, falling most heavily on the working class.
In 1909 President William Howard Taft, a Republican, called for a constitutional amendment to establish a personal income tax and, meanwhile, persuaded Congress to pass a tax on corporate profits as part of the Payne-Aldrich Tariff Act. Technically an excise tax on the privilege of doing business as a corporation, there was no constitutional impediment to the tax. And since nearly all corporate stock was owned by the rich at that time, it was a way of taxing them indirectly but effectively.
Had the corporate income tax, meant as a temporary measure, been repealed when the 16th Amendment was ratified in 1913 and a personal income tax established, the country would have been spared a great deal of political and economic grief. But it was not, and the interaction of the two taxes has been the main engine driving the ever more complex income-tax system, as lawyers and accountants found ways to play one tax off the other. For instance, when personal income-tax rates soared to 75% during World War I, thousands of wealthy Americans simply incorporated their holdings to pay the far lower corporate tax rate.
What positive effects would abolishing the corporate income tax have? Many. Here’s my Top 10:
First, that engine of tax complexity disappears. And with it disappears an army of lobbyists in Washington working to get favorable tax treatment for corporations.
Second, corporate managers are currently most concerned with after-tax corporate profits, because that is what the stock market cares about. But after-tax profits are largely an artifact of lobbying success in Washington. With no corporate income tax, management would concentrate on what is now pretax profits, an artifact of actual wealth creation.
Third, there would be no reason to tax dividends at lower rates to compensate for the fact that they now are paid out of after-tax profits. They would be taxed at the full rate, removing a perennial tool of leftist demagoguery.
Fourth, with suddenly increased profits, corporations would increase both dividends and investment in plant and equipment, with very positive effects for the economy as a whole and increased revenue to the government through the personal income tax.
Fifth, stock prices, which are a function of perceived future earnings, would rise substantially, inducing a wealth effect as people see their 401(k)s and mutual funds rising in value. That would lead to increased spending and thus increased tax revenues.
Sixth, the distinction between for-profit and nonprofit corporations would disappear. So nonprofit corporations would not have to jump through hoops to qualify for that status. And the IRS would have one less means of corruption available to it.
Seventh, much of the $2 trillion of foreign earnings, now kept abroad to avoid being taxed when repatriated, would flow into this country. That would greatly increase the country’s liquid capital. That, in turn, would cause interest rates to decline and investment in plant and equipment and new technology to go up, boosting the economy as a whole, and thus federal revenues.
Eighth, as the U.S. would now have the lowest corporate income-tax rate (which is to say, zero) instead of the highest, foreign corporations would flock to invest here, especially as they would not have to pay taxes on profits when they brought them back to their home country. Only the U.S. taxes repatriated offshore profits.
Ninth, foreign countries, faced with a huge investment boom in the U.S., would be forced to lower or eliminate their own corporate income taxes, increasing domestic corporate profits and thus domestic investment and personal income, helping to end the economic malaise that has lingered since the world-wide financial crisis of 2008.
Tenth, eliminating the corporate income tax would deal a blow to crony capitalism. Most U.S. government favors to industry are in the form of favorable tax treatment. Most subsidies for politically fashionable but otherwise unprofitable technologies, such as wind and solar power, are also part of the ever-expanding corporate tax code. No corporate tax code, no favorable tax treatment and no subsidies, except direct ones, which would be much easier to hold to political account.
Mr. Gordon is the author of “An Empire of Wealth: The Epic History of American Economic Power” (HarperCollins, 2004).
Posted on 12/29/14 at 9:04 pm to I B Freeman
quote:
A very good proposal that would dramatically improve economic conditions in the USA.
I'm for much higher rates.
Posted on 12/29/14 at 9:06 pm to I B Freeman
Corporate income taxes are definitely nonsensical. Corporations in and of themselves do not benefit from government services, the people within a corporation do. And since taxation exists to fund services, I see no reason why the corporation as an entity should pay for them.
Posted on 12/29/14 at 9:06 pm to I B Freeman
Count me in.
I have been a proponent of eliminating corporate income taxes since being a student at LSU in the early to mid 1970s.
I have been a proponent of eliminating corporate income taxes since being a student at LSU in the early to mid 1970s.
Posted on 12/29/14 at 9:06 pm to TT9
quote:Why do you support shipping jobs overseas?
I'm for much higher rates.
Posted on 12/29/14 at 9:08 pm to TT9
quote:
A very good proposal that would dramatically improve economic conditions in the USA.
I'm for much higher rates
Well there would be much higher rates on dividends.
I betcha if it was eliminated tax collections would increase tremendously.
Do you have any idea how much it would juice the economy if private investment increased by the trillion dollars held on the balance sheets of multi nationals based in the US?? Nobody is going to bring that cash back to the US with the taxes like they are now.
Posted on 12/29/14 at 9:12 pm to HailHailtoMichigan!
Greed is why jobs are sent overseas.
Posted on 12/29/14 at 9:14 pm to TT9
quote:
Greed is why jobs are sent overseas.
Yes sir---greedy government will run people out of the country.
Posted on 12/29/14 at 9:29 pm to I B Freeman
I B giving TT the strong Pimp hand.
Posted on 12/29/14 at 9:34 pm to TT9
quote:
Greed is why jobs are sent overseas.
Your really have no economic knowledge do you...
Posted on 12/29/14 at 9:35 pm to TT9
quote:
Greed is why jobs are sent overseas.
What's wrong with greed?
Posted on 12/29/14 at 9:38 pm to TT9
quote:
Greed is why jobs are sent overseas.
I see that you are an economic illiterate. Let me help.
This post was edited on 12/29/14 at 9:39 pm
Posted on 12/29/14 at 9:39 pm to TT9
If tax revenue increased from such a move would you be for or against the move? Please explain your answer...
Posted on 12/29/14 at 10:13 pm to I B Freeman
Corporations are people, too.
Posted on 12/29/14 at 10:38 pm to I B Freeman
seems very common sense.
i like it
i like it
Posted on 12/29/14 at 10:38 pm to TT9
quote:
Greed is why jobs are sent overseas.
Posted on 12/29/14 at 10:41 pm to I B Freeman
quote:
Seventh, much of the $2 trillion of foreign earnings, now kept abroad to avoid being taxed when repatriated, would flow into this country. That would greatly increase the country’s liquid capital. That, in turn, would cause interest rates to decline and investment in plant and equipment and new technology to go up, boosting the economy as a whole, and thus federal revenues.
Eighth, as the U.S. would now have the lowest corporate income-tax rate (which is to say, zero) instead of the highest, foreign corporations would flock to invest here, especially as they would not have to pay taxes on profits when they brought them back to their home country. Only the U.S. taxes repatriated offshore profits.
Ninth, foreign countries, faced with a huge investment boom in the U.S., would be forced to lower or eliminate their own corporate income taxes, increasing domestic corporate profits and thus domestic investment and personal income, helping to end the economic malaise that has lingered since the world-wide financial crisis of 2008.
Tenth, eliminating the corporate income tax would deal a blow to crony capitalism. Most U.S. government favors to industry are in the form of favorable tax treatment. Most subsidies for politically fashionable but otherwise unprofitable technologies, such as wind and solar power, are also part of the ever-expanding corporate tax code. No corporate tax code, no favorable tax treatment and no subsidies, except direct ones, which would be much easier to hold to political account.
First I would argue that corporations are treated like people so they should be subject to income tax. I am however in favor of a much lower corporate tax rate say 15%-20% if they include matching spending cuts and eliminate most of the deductions
I find it hard to believe that businesses would move manufacturing jobs back to the US because of the cost of employee salaries/benefits and making their factories environmentally compliant
I believe tax breaks to industries like alternative energy are necessary to encourage corporate investment in sectors that are not currently profitable but are necessary for long term security ie. renewable energy or manufacturing
Posted on 12/29/14 at 10:47 pm to mikelowery1911
Besides the income tax itself, how much money is spent on compliance bycompanies? Such a move would reduce a lot of red tape for corporations and reduce a lot of cost. This will make complanies much more competitive...
Posted on 12/29/14 at 10:50 pm to I B Freeman
Why would a company move a factory to or hire American workers just because it is taxed less? It will still try to maximize profits and take advantage of cheaper labor and lower pollution standards.
The tax is on profits, not on labor. You'd have to abolish payroll taxes to have any direct effect like that.
Also, abolishing the personal income tax would do more to bring jobs back than abolishing corporate income taxes. People would need less pre-tax income and thus labor would be more affordable.
Of course all bets are off when other taxes (sales, VAT, fees, etc) are raised to compensate.
Having said that, states that still have corporate income taxes are doing it wrong, IMO.
The tax is on profits, not on labor. You'd have to abolish payroll taxes to have any direct effect like that.
Also, abolishing the personal income tax would do more to bring jobs back than abolishing corporate income taxes. People would need less pre-tax income and thus labor would be more affordable.
Of course all bets are off when other taxes (sales, VAT, fees, etc) are raised to compensate.
Having said that, states that still have corporate income taxes are doing it wrong, IMO.
This post was edited on 12/29/14 at 10:52 pm
Posted on 12/29/14 at 11:47 pm to TT9
Greed is a natural trait of humans that will never go away. You might as well incentivize them to practice their greed here rather than overseas so other can benefit in the form of good paying jobs.
Government is made up of greedy individuals who have the power to force you to pay money to them. I don't know why you support them over a private individual with no power to force you to buy their products.
Government is made up of greedy individuals who have the power to force you to pay money to them. I don't know why you support them over a private individual with no power to force you to buy their products.
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