We Americans like to flatter ourselves that we have the lowest taxes in the Western “Democracies.” That’s because we look at individual tax rates. When it comes to corporations, our tax rates are not low at all. There are many countries that leave businesses alone to make a profit. They collect their tax revenue, after wealth has been produced, by taxing incomes.
In fact, there are countries with such lower rates that U.S. companies are being acquired more and more by foreign companies so that they don’t have U.S. corporate tax rates. It is such a problem that the Secretary of the Treasury, Jack Lew, wrote a letter to Congress asking them to make a new law to stop this process. (You can download the pdf here.)
I have a better idea. Why not simply remove the incentive? Make corporate taxes zero and foreign acquisition of a company will never be tempting. In fact, it will work the other way around. More Americans will acquire overseas companies.
The truth is that corporate taxes are illusions. You don’t tax corporations. You tax the people. The cost of taxing a corporation simply comes out of the prices that consumers pay and the wages that employees receive. Nothing more than that is available for a corporation to give to the government. All the rhetoric about how corporations should not have first amendment rights is all overblown. What we really need to realize is that corporations don’t have any resources except what they take from people.
It would be much simpler to allow corporations to offer lower prices, higher wages, and better dividends. In fact, by not taxing corporations, we will put more money back into society than we take out in taxes. The cost of taxation is not simply the money that is transferred from the corporation to the government but also the cost of compliance. As a freelance writer I have worked to represent people whose entire job is to help corporations be sure that they are compliant with multiple tax jurisdictions. It is an incredibly complicated job. These people make good money simply making sure that the companies are paying out all the money they owe (because they don’t want to be fined) and not paying more than they have to (which can also easily happen). All of that cost would disappear if we could simply give up on the delusion that taxing corporations is a good idea.
Economic columnist/blogger Megan McArdle also recommends this course of action, but she admits that simply abolishing corporate taxes would mean less revenue for the government.
So here’s my proposal: Eliminate the corporate income tax and take the money from people. That’s what you’re doing anyway, so do it in a simpler, fairer and more progressive way, by raising income taxes on the wealthy and taxing capital income (dividends plus capital gains) more like ordinary income.
Here’s my alternative proposal: Eliminate the corporate income tax and also stop taking as much money from the people. Lower income tax to a flat nine percent. Reduce spending on the military and phase out welfare and social security.
At a flat nine percent tax rate without corporate taxation we would see an economic growth explosion. People would not need the government “services” that these taxes pay for.