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The Mystery of Corporate Taxes (Vol. 98)

Politics vs. Reality

Raise Corporate taxes! Make them pay their ‘fair share’. PBS (political bull sh-t)


How many times have we heard that from the tax and spenders in DC? Not so fast, is that really good policy that helps the U S? You can predict what I am going to say next:


No. It isn’t good policy and it isn’t good for the U S.


First and foremost, corporations don't pay taxes. Yes, they may write the checks to Uncle Sugar, but who really pays them? We do, don’t kid yourself, it is a cost just like any other cost and is built into the prices we pay. Or it may reduce the earnings or employment opportunities for work. But the real impact of the taxes is on the public in one way or another.


High taxes discourage investment in this country. If our tax is 35% and Ireland’s tax is 12.5%, where do you think new investment goes? Ireland is a case study in the impact of low corporate taxes, it has flourished since it lowered its corporate tax rate to 12.5% in 2003, making it one of the most competitive tax environments globally (just ask U2 lead singer Bono, who in 2014 said “tax competitiveness has brought our country the only prosperity we’ve known.”). Countries compete for growth and investment, just like companies compete for your business.


When we lowered the tax rate from the highest in the industrialized world of 35% to 21% in 2017, what happened? Our tax rate became competitive with other countries and investment here started increasing. After a brief drop because the effect of the tax cut lags the actual reduction, tax revenue trended up, not down. In 2017, tax collections in the US were $230 billion. They trended down for a few years, hurt by the pandemic in 2020, but by 2021 they were $279 billion and in 2022 they rose to $335 billion.


That is called growth, and that is good for us. It produces jobs and income for more folks, and that increases income tax revenue, the main source of income for the U S government. About 87% of federal income comes from taxes on income, income tax and payroll tax.


But did you know how much corporate income tax produces as an income source for the government? Only around 9% of our total Federal income. If we raise the tax and it discourages investment and jobs, the overall economic effect is negative, not positive – all those people who get jobs and consume when the economy is growing have to pay taxes, and when the economy doesn’t grow, neither does tax revenue. . Look at total Federal income since the tax cut in 2017. It has increased to near record highs in dollars and as a percentage, to 19.6% of our GDP. The only time it was a slightly higher percentage of GDP was in 1944-1945, the Second World War years. That wasn’t coming primarily from corporate taxes, but from taxes paid by individuals who benefit from the rising tide of economic growth – and if that growth stalls under the weight of increased corporate taxes, the country loses.


And now some politicians want to equalize corporate taxes or set minimums among countries so they don't have to compete. The bureaucrats just don’t get it - competition is good not bad. How stupid can they be? And if we don’t understand the facts, we will not know how stupid they truly are.


BOTTOM LINE


Quit listening to the demagoguery from our politicians appealing to emotions, withholding the facts to make a case which does not hold up under scrutiny. We need good, sound policy, not political rhetoric.

Don't raise the corporate tax. Maybe we should consider eliminating it instead, but the politicians wouldn’t go for that just like they won’t go for throwing out the entire 75,000 pages of tax code and starting over.


LEARN ECONOMICS, THEN VOTE SMART

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