The Tax Foundation–at it again with bunk about overtaxed
by Linda Beale
The Tax Foundation–at it again with bunk about overtaxed corporations
Ok, I’m tired of it. Aren’t you? The Tax Foundation–an organization that claims bipartisanship but these days seems to be a shill for corporate managers and owners–is at it again, claiming that US businesses “are paying the second-highest corporate tax rate in the world.” That’s misleading at best, and maybe just downright hypocritical.
The Tax Foundation knows that the US statutory tax rates (set at 35% for the biggest corporations, but at much lower rates for the majority of corporations that have less than $10 million in assets) are not paid on the full amount of income by corporations, and in fact the effective tax rates (amount of tax paid as a percentage of income earned) are much much lower–enough lower so that the US counts as a tax haven on the tax rates scale.
Further, the US taxes for US businesses are plenty competitive. Taxes are most likely not the reason they go abroad: it seems to be much more likely that they do so to get away with paying their workers near slave-labor wages rather than enough for a decent standard of living. And even that isn’t passed on to customers–it provides the moolah to pay managers ridiculously high salaries and pay rent dividends to shareholders.
Moreover, tax cuts for corporations don’t really create jobs. If they did, we wouldn’t have had the great recession, since the Bush tax bills included a whole smorgasboard of tax cuts for businesses, including the infamous “American Jobs Creation Act of 2004” that cut corporate rates (almost tax-free repatriation of foreign-earned income, manufacturing deduction that lowered the corporate rate for most US industries, all kinds of tax expenditures for extractive industries, various changes to subpart F that favored corporate taxpayers, bonus depreciation, etc.). If tax cuts for businesses worked, those bills should have resulted in millions upon millions of new jobs. Instead, it looks like most of the benefit of the low-taxed repatriation of profits went to stock buybacks and other manager/owner-friendly provisions, not job creation. IN fact, as pointed out in earlier postings, many of the corporations employing the low-taxed repatriation laid off workers! So much for tax cuts as a way to create jobs…..
But the organization continues putting out one press release after another claiming that our business tax system is “out of line with the rest of the industrialized world” or that we don’t have jobs because of a too-high corporate tax rate.
Bunk. Hoopla. Exaggeration.
The Tax Foundation press release then goes on to commit even worse sins. It complains about “playing one class against another” in setting tax policy. Fact is, the wealthy class has been engaging in class warfare in this country for decades. Talking about appropriate distributive policies is the right thing to do. We need to address the growing problem of income inequality and the resulting diminishing standards of living for many in a country that is extraordinarily wealthy in the aggregate.
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crossposted with ataxingmatter
I’ve given a lot of thought as to why they get away with this, we are a high tax country lie. I am convinces that some of has to do with the fact that we rely on business to withhold taxes. At the end of the quarter or month whatever, business has to pay that portion of their employee’s wages that has been withheld for taxes. Now this is NOT the tax paid by the business, but taxes paid by the employee, but the business owner pays a check to a tax authority. Since they pay directly to the IRS or state IRS it feels to them like their (the business owners) tax. The business owner doesn’t relate to the fact that they have the advantage of holding interest free their employees wage withholding, they just don’t make that connection in their head. To the business owner it’s just a tax they are paying.
Rdan,
I didnt read the article but I just want to say that we probably are overtaxed, at least right now. However, more importantly, I think the efforts of “progressives” should be centered around dismantling the relationship between taxation and spending of the govt. There is NO reason the two have to match up…..EVER. Not over the course of the business cycle, during the third phase of the moon or when Jupiter aligns with Mars. Our efforts should be in that direction not for political reasons but because ITS TRUE.
There is no economic law which states that spending of the govt needs to be offset by equal tax collections. This is a man made political constraint that was only somewhat necessary during our gold standard days (forever to be referred to as the financial dark ages). The proof for it is OBVIOUS. How many times in our history have we even approached that? Something like 3 or 4 times. Most recently the end of Clinton years. What followed? A recession all four times. That is not mere coincidence either I might add. Removing financial assets from the private sector, which is the INTENTION of taxation, will always lead to less spending (a recession).
Now I hope its clear ,but I will make sure it is, that I do not advocate NO taxation and UNLIMITED spending. I only advocate making those decisions completely separate from each other and with their OWN sets of goals. Spending goals should be 1) Do I need it 2) Can I get it here 3) Can I build it here
4) Do I need to import it 5) Will my demand for it drive up the price for the private sector
Taxing goals should predominantly be directed at cooling demand and slowing inflation if it is present.
Taxing goals should not be about funding our expenditures.
Not sure, but the coporate tax question is probably not all that simple:
http://online.wsj.com/article/SB10001424052748704022804575041253835415076.html
Deep in the president’s budget released Monday—in Table S-8 on page 161—appear a set of proposals headed “Reform U.S. International Tax System.” If these proposals are enacted, U.S.-based multinational firms will face $122.2 billion in tax increases over the next decade. This is a natural follow-up to President Obama’s sweeping plan announced last May entitled “Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas.”
The fundamental assumption behind these proposals is that U.S. multinationals expand abroad only to “export” jobs out of the country. Thus, taxing their foreign operations more would boost tax revenues here and create desperately needed U.S. jobs.
This is simply wrong. These tax increases would not create American jobs, they would destroy them.
Academic research, including most recently by Harvard’s Mihir Desai and Fritz Foley and University of Michigan’s James Hines, has consistently found that expansion abroad by U.S. multinationals tends to support jobs based in the U.S. More investment and employment abroad is strongly associated with more investment and employment in American parent companies.
When parent firms based in the U.S. hire workers in their foreign affiliates, the skills and occupations of these workers are often complementary; they aren’t substitutes. More hiring abroad stimulates more U.S. hiring. For example, as Wal-Mart has opened stores abroad, it has created hundreds of U.S. jobs for workers to coordinate the distribution of goods world-wide. The expansion of these foreign affiliates—whether to serve foreign customers, or to save costs—also expands the overall scale of multinationals.
Expanding abroad also allows firms to refine their scope of activities. For example, exporting routine production means that employees in the U.S. can focus on higher value-added tasks such as R&D, marketing and general management.
The total impact of this process is much richer than an overly simplistic story of exporting jobs. But the ultimate proof lies in the empirical evidence.
Consider total employment spanning 1988 through 2007 (the most recent year of data available from the U.S. Bureau of Economic Analysis). Over that time, employment in affiliates rose by 5.3 million—to 11.7 million from 6.4 million. Over that same period, employment in U.S. parent companies increased by nearly as much—4.3 million—to 22 million from 17.7 million. Indeed, research repeatedly shows that foreign-affiliate expansion tends to expand U.S. parent activity.
Hold it – right off the bat, *you’ve* got something (major) wrong.
Taxes may be lower for corporations with less than $10 million in *income* not *assets*. Asset base has nothing to do with income tax levels.
Seems pretty sloppy on your part if you are going to be this shrill.
McWop: “For example, as Wal-Mart has opened stores abroad, it has created hundreds of U.S. jobs for workers to coordinate the distribution of goods world-wide.”
Not that I disagree with you, but Walmart is not a good example for your argument. How in the world could creating a checkout job abroad prevent creating a checkout job in the U. S.? (Especially since Walmart has a gazillion stores in the U. S.) They have different customers, so one job is not the replacement of the other. This example does not really address the issues.
Linda,
We all know that business associations tend to exagerate their findings. However, you should have taken a look at their computations and explained why you think they miss the mark as part of your critique.
I don’t remember how to do the computation but a very, very first go at it is the following (and i’m not looking up the rates here)
Start with $100 in pre-tax corporate profit. Assuming income is taxes at 35 percent that takes the $100 down to 100*(1-.35) = $65. Now if this money is distributed to someone paying 35 percent federal tax and 5 percent state tax, after tax income is $65*(1-.4)=$39.
So out of the original $100 in profit the government takes $61 and the owners of the company get $39, and the rate of tax is is $61 / 100 = 61 percent.
The government taxing 61 percent of profits seems high to me. Feel free to do a proper calculation with real numbers.
Linda,
We all know that business associations tend to exagerate their findings. However, you should have taken a look at their computations and explained why you think they miss the mark as part of your critique.
I don’t remember how to do the computation but a very, very first go at it is the following (and i’m not looking up the rates here)
Start with $100 in pre-tax corporate profit. Assume income is taxed at 35 percent, this takes the $100 down to 100*(1-.35) = $65. Now if this money is distributed to someone paying 35 percent federal tax and 5 percent state tax, after tax income is $65*(1-.4)=$39.
So out of the original $100 in profit the government takes $61 and the owners of the company get $39, and the rate of tax is is $61 / 100 = 61 percent.
The government taxing 61 percent of profits seems high to me. Feel free to do a proper calculation with real numbers.
Yep. Pull the other finger.
Corporations and their enablers ALWAYS present their arguments against taxes in one or both the following ways:
One. Taxes cost jobs. Tax cuts enable hiring
Two. Tax increases simply get passed through to prices so why bother.
You can make, and certainly attempts have been made here, the economic case against either, I mean they just are not true, but it will never matter because the real argument hides behind the curtain, what corporations believe can best be expressed as follows:
Three. Corporate taxes squeeze earnings and hence profits. Which in turn lowers stock prices and dividends which in turn tend to suppress executive compensation.
The only real debate remaining in American corporatism is whether management is a fiduciary for stockholders or working in their own interest. The implicit claim underlying corporate public resistance to taxes, that they are just benevolent public citizens out to sustain jobs in the interests of delivering fair prices to customers, is and always has been a cruel joke, both economic theory and legal rules about fiduciaries would argue that corporations should act in the interest of their owners.
This is not to say that corporations can’t seek to be excellent employers or generous public citizens, because many are, but reality and theory align to suggest that such actions are conceived as ultimately enlightened self-interest, in the end the bottom line is both literally and figuratively exactly that, where the focus is and just as importantly where it should be.
Corporate taxes are bad for the bottom line. It really and truly reduces to that.
Linda,
You should link to the study you are critiquing. That might give some more substance to your post, because now it comes off as a completely unsubstantiated rant.
Stiglitz: ” … the export of T-bills is different from the export of cars or computers or almost anything else: it does not create jobs. That is why countries whose currency is being used as a reserve, and exporting T-bills rather than goods, often face an insufficiency of aggregate demand.”
Now, if this ‘insufficiency’ is combined with the increasing reliance in the US on financial services, and on gains via the trans-national corporations, it becomes much easier to understand the logic of the ‘trickle-down’ theory in the context of Globalization. I am not advocating ‘trickle down’ here, but it does make our mess easier to understand. Stiglitz again:”…note that the world’s economies hold more than 4.5 trillion of reserves,increasing at a rate of about 17% a year. In other words, every year some $750 billion dollars of purchasing power is removed from the global economy, money that is effectively buried in the ground.”
The point then is that efforts to create jobs, such as Bush’s tax cuts, or such as those that are part of the stimulus attempts, are not possible to analyze with traditional criteria. Tax cuts for example do nothing to increase global demand for US goods, and, the additional US debt decreases global demand by locking up global purchasing power. Essentially, it has become almost pointless to evaluate the US economy as if it might be understood without the global implications, but that is mostly what economists in the US do, and largely as a result of denial. The simple truth is that the presumption that developing nations ‘should’, share ‘their’ demographic dividend with the developed nations was folly from the start, and based on a faulty premise that ignores the negative externalities in the economies of scale computations, and, additional layers of presumption regarding energy and all labor costs. So, the question is, does anyone actually believe that tweaking the US economy might solve our problems?
That was the author’s example, and I agree a clerk in China does not replace a cleark in the US. The point of the research is that changing the tax rates for foreign operations may cause companies to locate the supporting roles for those foreign jobs, which may currently be in the US, overseas.
Bruce mentions below that taxes are bad for the bottom line. He is 100% correct. And if the bottom line stinks, then people may be effected in different ways. At my compnay, if the bottom line (after taxes) stinks, then our pay gets hurt. If one cannot make a profit then people may not put up capital to enagage in endevours that generate a bottom line and thus jobs. What is teh effective tax rate where this occurs? I do not know. But if you taxed corporate profits at 100%, I bet the results would not be so great.
Stiglitz: ” … the export of T-bills is different from the export of cars or computers or almost anything else: it does not create jobs. That is why countries whose currency is being used as a reserve, and exporting T-bills rather than goods, often face an insufficiency of aggregate demand.”
Now, if this ‘insufficiency’ is combined with the increasing reliance in the US on financial services, and on gains via the trans-national corporations, it becomes much easier to understand the logic of the ‘trickle-down’ theory in the context of Globalization. I am not advocating ‘trickle down’ here, but it does make our mess easier to understand. Stiglitz again:”…note that the world’s economies hold more than 4.5 trillion of reserves,increasing at a rate of about 17% a year. In other words, every year some $750 billion dollars of purchasing power is removed from the global economy, money that is effectively buried in the ground.”
The point then is that efforts to create jobs, such as Bush’s tax cuts, or such as those that are part of the stimulus attempts, are not possible to analyze with traditional criteria. Tax cuts for example do nothing to increase global demand for US goods, and, the additional US debt decreases global demand by locking up global purchasing power. Essentially, it has become almost pointless to evaluate the US economy as if it might be understood without the global implications, but that is mostly what economists in the US do, and largely as a result of denial. The simple truth is that the presumption that developing nations ‘should’, share ‘their’ demographic dividend with the developed nations was folly from the start, and based on a faulty premise that ignores the negative externalities in the economies of scale computations, and, additional layers of presumption regarding energy and all labor costs. So, the question is, does anyone actually believe that tweaking the US economy might solve our problems?
Stiglitz: ” … the export of T-bills is different from the export of cars or computers or almost anything else: it does not create jobs. That is why countries whose currency is being used as a reserve, and exporting T-bills rather than goods, often face an insufficiency of aggregate demand.”
Now, if this ‘insufficiency’ is combined with the increasing reliance in the US on financial services, and on gains via the trans-national corporations, it becomes much easier to understand the logic of the ‘trickle-down’ theory in the context of Globalization. I am not advocating ‘trickle down’ here, but it does make our mess easier to understand. Stiglitz again:”…note that the world’s economies hold more than 4.5 trillion of reserves,increasing at a rate of about 17% a year. In other words, every year some $750 billion dollars of purchasing power is removed from the global economy, money that is effectively buried in the ground.”
The point then is that efforts to create jobs, such as Bush’s tax cuts, or such as those that are part of the stimulus attempts, are not possible to analyze with traditional criteria. Tax cuts for example do nothing to increase global demand for US goods, and, the additional US debt decreases global demand by locking up global purchasing power. Essentially, it has become almost pointless to evaluate the US economy as if it might be understood without the global implications, but that is mostly what economists in the US do, and largely as a result of denial. The simple truth is that the presumption that developing nations ‘should’, share ‘their’ demographic dividend with the developed nations was folly from the start, and based on a faulty premise that ignores the negative externalities in the economies of scale computations, and, additional layers of presumption regarding energy and all labor costs. So, the question is, does anyone actually believe that tweaking the US economy might solve our problems?
I agree with you that tax increases do not necessarily get passed trough higher prices. And I agree that a higher tax rate does not immediatley impact employment. But, the corporate tax rate does impact teh cost of capital. If the cost of capital goes to high, then you may have adverse effects. Also higher rates can hurt employees who have ownership stakes in companies.
So yes it is the bottom line, but bottom lines are important, and not always used for evil.
“additional layers of presumption”
I originally read that as, “additional lawyers of presumption”
Just thought I would share. 😉
More from Stiglitz:” the Uruguay Round made an unlevel playing field less level. Developed countries impose far higher—on average four times higher—tariffs against developing countries than against developed ones. A poor country like Angola pays as much in tariffs to the US as does rich Belgium; Guatemala pays as much as New Zealand. And this discrimination exists even after the developed countries have granted so-called preferences to developing countries. Rich countries have cost poor countries three times more in trade restrictions than they give in total development aid.”
And some economists in the US argue that tax cuts will solve our aggregate demand problems, as if the US role in the global economy has no consequences. Others claim that ending the alleged dependence on ‘foreign oil’ is the end all solution as if this has nothing to do with the global demand for US goods. As if Uncle Sam might just thumb his nose at the oil producing nations that we owe a couple of trillion to, as if. ~ray
(Making Globalization Work, 2007, pg.78)
Min,
I think it works either way on some level?
Mcwop: “Indeed, research repeatedly shows that foreign-affiliate expansion tends to expand U.S. parent activity.”
This ‘research’ seems to ignore the displacement of workers and businesses. Without knowing not only how many jobs, but what those lost jobs and opportunties amount to in $$, this research is bogus. ~ray
How about cutting the rate but imposing the taxes on all corporate income rather than just profits !
Also, why should corporations get to deduct political contributions as business expenses while real people don’t get any deduction for political contributions.
It is too bad that this subject matter is not more popular. Corporate taxes could be raised for instance, in say the G8 or so, and this could provide the much needed revenues to address some of the global demand issues such as those regarding the exploitive trade practices etc. An ‘exploitation reparations fund’ could also improve two other problems as well. 1) A higher corporate tax could cause shareholders to apply pressure to Executives in order to bring down compensation levels at the management level. 2) An institutional wealth transfer aimed at raising global aggregate demand would bring balance to the very imbalances that have caused the economies of Japan and the US to be overwhelmed with investment capital.
The lack of ‘popularity’ though in these types of solutions is indicative of just how protective the citizens of the developed nations have become. At some point, “to conserve’, is the monkey with his hand stuck in the proverbial jar. And it is interesting how populations with roughly half of their voters who see themselves as ‘progressives’, when combined into a collective form, they ‘seem’ to transform in regards to global policies into power concentrations that are essentially fascist or ultra-conservative. Is it possible that the acceptance of selfish behaviors, over a long period of time, have caused a new form of collective mental illness, of of a collective delusion? ~ray
How does Wal Mart expanding in China displace jobs/workers here?
Mcwop,
I may have misunderstood. Toward the end you say ‘foreign-affiliates’, but at an earlier point it is just ‘affiliates’. Sorry, i should have read it more carefully.
The USA and some other nations compare in total tax revenue as a percentage of GDP:
2007 2008*
Denmark 48.7% 48.3%
Sweden 48.3% 47.1%
Belgium 43.9% 44.3%
France 43.5% 43.1%
Italy 43.5% 43.2%
Finland 43.0% 42.8%
Austria 42.3% 42.9%
Germany 36.2% 36.4%
UK 36.1% 35.7%
Canada 33.3% 32.2%
US 28.3% 26.9%
* = provisional Source: Organisation for Economic Co-operation and Development
Hmmm….so costs for US Naval excorts for each and every oil tanker to the US should be charged to the company. Loophole to be established that oil for the military itself be funded by taxes. Would that raise or lower my cost here in the US?
Those research studies are a joke. There are too many Americans who have had to train their Asian replacements for anyone with half a brain to swallow those claims.
About 30 or more years ago when I was having the usual debate with friends about taxes in general and corporate taxes as a part of that; in response to my realization that; we the average joe and jane couldn’t ever do anything about how we were taxed! It occured to me since corporations have seemingly endless funds for every manner of persuading lawmakers to let them individually and severally by industry off the tax rolls.
So now we have a supreme court that will give them even more power to manipulate tax codes.
I suggest that they ( the corporations )in fact pay no federal taxes at all on income !
However take away any corporate deductions for Image ads , and limit their cost of doing business deductions to actual product advertisment! Then all income must be paid to the stockholders anually and no stockholder even benevolent trusts would be exempt from a individual tax rate on the earnings.
In a democracy it is nearly impossible to stop those who control the wealth, being individuals or corporations or trust from exercising more political power than the concept of one person one vote as long as they can purchase friendly government decisions. The first complaint will be then how will corp’s grow by investing retained profits? So use the existing dividend reinvestment systeem and those who who want re-invest can. The company will use that income for reinvestment.
I’m sure that this idea will be cut up and dissected to death so go to it, but some of this concept may stick or better yet encourage others to dream up taxing workarounds that would put the political control of our nation back into the hands of its public. A magic bullet that scuttles fifty years of special interest encroachment on the political system.