I debated whether to put this in GQ or GD, but I love a good debate, and figure GD will be less constraining to the conversation.
Over the years, I have heard many on the right claim that our (US) corporate income taxes are the highest in the world at 35%, and that makes us less competitive. However, I also hear stories about large, profitable corporations like GE, Boeing, and Verizon paying little or no taxes due to the complexity of the code and the permissive deductions. I have also seen claims made that the portion of federal revenues from corporate taxes has declined by about 2/3 since 1950, even while payroll taxes have risen by a commensurate amount.
However, it seems to me that the impact of corporate taxes have two distinct aspects, one relative and one absolute. That is, reducing corporate taxes may free up money for economic growth (i.e., expansion, hiring) in its own right- the absolute impact. But if the rest of the industrialized world has a similar rate, then competitiveness is not reduced by this rate- the relative impact.
So I have some questions which probably don’t have absolute answers, but I am eager for the debate that is likely to follow. I will state my opinions at the end.
-How does the US corporate tax rate compare to the rest of the industrialized world, both in terms of the stated rates, and the rates after the application of legal deductions, credits, etc? That is, if the US starts at 35%, but commonly available deductions and strategy make 20% a typical effective rate, and German law starts its rate at 25% but is more stingy and only allows a “typical” reduction of 5%, well, that may be a distinction without a difference.
-Do we know the impact of shifting the burden from corporation to individual? If we assume a relatively fixed federal budget, what do we know about whether it is better to allow corporate or consumer “wealth” drive the economy? Are we better with a 5% corporate tax and a 35% individual tax? The other way around? I realize that some will argue that ALL taxes AND federal spending need to drop, but for the sake of this discussion (and in line with my lifelong observations) let’s please not go there. Again.
I have a suspicion that most of the industrialized world has similar effective corporate tax rates, with a few differences around what deductions are favored. For instance, I can imagine Germany allowing deductions favorable to manufacturing, while someplace else might favor R&D more. But I readily admit I don’t know.
Also, if it could be shown that shifting the burden more to one group or the other was in the interest of the greater good, I could get behind that. However, there seems to be an assumption that any “extra” money in the hands of corporations necessarily gets “used.” But it seems to me that most of it gets saved or sequestered. If GE’s stock price doubles, I don’t imagine that they declare it factory building time, unless there was already a perceived need for which they were having trouble arranging financing.
As an aside, I never liked the term loophole when used to mean deductions. Deductions, such as R&D, are very intentionally allowed. “Loophole” implies that one is taking advantage of something in a way not originally intended.
I hope that wasn’t too incoherent.