Thursday, October 30, 2014

What Corporate Taxes REALLY Are in the US

As you know I tire of debating with people who are not only uninformed, but ideologues who have no problems lying in order to advance their cause.  This is one of the reasons I no longer listen to the news, and instead pull data as my primary source of information and opinion forming.  One such debate was the issue of "what corporations really pay in taxes."

The right screams bloody murder pointing at the stated corporate tax rate of 40%.
The left screams "loopholes," talks about GE and Google's 0% tax rate, and then claim the "effective tax rate" is 12%.

I know both sides of the argument, and know what is the correct approach to it:

"You shouldn't even have a corporate tax you idiots.  You want jobs.  You want to attract investors.  Get rid of this cancer that is holding the US back from its full potential."

Regardless of philosophical arguments about whether there should even be a corporate tax, I decided to look up once and for all the REAL corporate tax rate.  I'm not listening to the right fretting over the statutory 40% rate.  And I'm CERTAINLY NOT listening to some bogus academian study made of whole cloth by biased socialists "professors."  I simply took "Corporate Profits BEFORE Taxes," subtracted "Corporate Profits AFTER Taxes," divided it by the former and calculated the REAL AND TRUTHFUL tax rate the US has had since 1929.

Got it?

Before taxes.  After taxes.  Subtract and divide.

"I get the disks, you drop Walsh."

So here it is ladies and gentlemen.

So that's it.  That's what all the hubbub is about.  The current effective tax rate is about 22% and has been trending down since the 1930's.

Naturally the left (if they ever read this blog) would seize on this claiming that corporate taxes in the glorious 50's was around 41% and we were booming then.  And naturally the right will seize on this saying 22% is more than the 0% leftists would like everything to think corporations pay.

But I'm going to try to introduce some reality into the situation as to why corporate taxes have been going down so that we MIGHT actually leave a better economy to our future;

Foreign competition.

And we're not talking about foreign competition from manufacturing or other economic competitors.  We're talking about competition from other governments.  Specifically, governments are competing for investors and corporations as they ALL lower their corporate taxes to lure them.

This is why you have Burger King merging with Tim Horton's.  This is why you have Medtronic leaving for Ireland.  This is why corporations have trillions parked overseas in Bermuda, the Caymans, Singapore and elsewhere.  Because there ARE greener pastures.

I'm not going to call for the argument that the US eliminate its corporate taxes forever.  It will fall on deaf ears of the left that are either too lazy to think this through or are too wedded to their ideology to have an independent thought or intellectual honesty.  It is also an argument that doesn't need to be preached to the right-wing choir.

I will point out however a rare phenomenon that you won't see very often - governments competing.

In this one rare instance, governments are acting like private sector companies and actually serving their customers well.  Governments want money, they want a tax base, they want a booming economy and some of them are waking up to what Hong Kong and Singapore woke up to nearly 50 years ago.  MAKE IT ATTRACTIVE FOR INVESTORS TO MOVE AND INVEST THERE.  Because of this some companies are scoring jobs.  And not just "jobs," higher paying white collar jobs that typically come with relocating a headquarters there.  This, like free markets always do, benefits the customers.  The customers of which are the citizens of the countries lowering corporate taxes.

This is not complicated, complex, high end economics.

This is simple 3rd grade logic.

And the fact the left in this country is blinded with envy and hate of "corporations" to the point they can't see the benefits of getting rid of corporate taxes means half the population we're dealing with are not as smart as 3rd graders.



Dr. Kenneth Noisewater said...

I'd be curious to see a chart that had lines added which include state corporate taxes paid, say a line for the top 10 and bottom 10 over that timeframe.

IIRC wages paid are deductible, so there's no double-taxation there. Putting on my Nationalist hat, I'd change that so only US citizens' wages are deductible.

Personally, I would like to see income taxes not be collected over the year, and payable all at once, so people actually see what they pay, and the US doesn't get interest-free loans from deducted salary.

Michael said...

One of Doug Casey's free emails dealt with this very topic, or was it Sovereign Man? Either way, the OECD wants to create an opec of tax jurisdictions so as to stop governments competing via tax. This also goes to show what I've long thought, but could rarely articulate; you're better off paying someone off than them trying to micromanage you. The biggest difference between now and then is regulation.

Robert What? said...

governments want money, they want a tax base

Well yes and no. They also want power and control over their citizens. A ridiculous and oppressive tax structure gives them that, even if the revenue is not quite what they'd like.

Anonymous said...

I had this argument when the current depression started. I told people we were actually in a great position; all we needed to do was defend the value of the dollar, eliminate the corporate tax and watch the foreign money roll in and our own money stay home while the rest of the world went Keynesian.

Robert What? said...

Large corporations have it easy compared to small entrepreneurial business who's profits are taxed as regular income. I'm too small to take advantage of the generous tax loopholes afforded to corporations and the wealthy. Too "rich" to qualify for any gubmint benefits. I basically subsidize both sides.

Anonymous said...

It's not quite as simple as corporations moving to other countries in search for lower tax rates. Much of the time, this "move" just means that the HQ moves to the new country, and the profits are accounted there, even though the actual production still takes place in the original country.

If the Cayman Islands wants to have a little libertarian utopia, all the power to it to enact whatever policies it wants pertaining to production that actually, physically, de facto takes place with its own jurisdiction.

The same applies to production that takes place within the sovereign jurisdiction of the US. It is the sovereign prerogative of the US to tax it at whatever rate it decides, and is under no obligation to not do so just because due to some accounting wizardry, no profits were generated in the US but a huge profit was generated in the tiny office the corp has in the Caymans.

Trying to compete with tax havens by undercutting them is a fool's errand, because there's no limit to how far down they can cut theirs, as it's free money for them anyway, skimmed off the economies of other countries. This should be so obvious that I'm beginning to think that those who advocate slashing corp taxes to prevent loss of tax revenue to tax havens are just looking for an excuse to slash corp taxes, period.

The solution is to set taxes at whatever level you deem appropriate, and actually enforce the tax code. What are the tax-dodging corps going to do, actually move their actual production to the Caymans? I'd like to see that happen. There's a reason why offshore tax avoidance is pretty much the only economic activity that goes on in places like that.

-Red Knight

Celtic Tiger Dad said...

When looking at a chart of "corporate tax rates" you are of course looking at a chart of a consumer-paid tax rates. Where do corporations get the tax money they pay? From YOU, when you buy their products or services. We bought a new Jeep yesterday and a few thousand of the dollars we spent just gets shoveled over to government. Chrysler USA and my local dealer simply collected the tax from me.

Taxes are just another business expense along with labor, overhead, material and other expenses that must be paid for with the price of a product or service. "Tax those evil corporations higher!" That's just boob-bait for the OWS fools.