Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Where did you get your money? Unless you inherited it, you obtained your money by working for a business. It either was your business or someone else’s business. If you inherited your money, your parents or other benefactor worked for a business to obtain their money.
Whichever scenario is appropriate to your situation, the money you received came from a business, and that money is part of what was left over after the business paid its bills — including its taxes.
Keep that in mind as your read excerpts from this Time Magazine article:
The Corporate Tax Rate Is Lowest in Decades; Is Business Paying Its Fair Share?
By CHRISTOPHER MATTHEWS, February 6, 2012 |
As the nation frets over slow growth and large budget deficits, much has been made over how much Americas are and should be paying in income tax. President Obama and Democrats have argued that the wealthiest among us are not paying their fair share.
But there is another source of federal revenues that receives less attention: corporate income taxes. According to the Wall Street Journal’s recent study of Congressional Budget Office numbers, corporations are paying an effective rate of 12.1%, the lowest in at least 40 years.
In 2010 and 2011, companies were allowed to deduct the full cost of the purchases of new equipment, while normally these costs would be expensed over several years. In 2012, this deduction will go down to 50% and be eliminated altogether thereafter, causing the effective tax rate to return to roughly the 25.6% average effective tax rate corporations paid since the late 1980s, according to CBO forecasts.
Is this good for you? Is it good for the economy?
Of course that 25.6% number is still quite a bit lower than the nominal tax rate of 35%, the highest in the world behind only Japan. So why aren’t corporations paying what the law says they should? Certainly, some are. According to Howard Barnet, a tax attorney with Carter Ledyard & Milburn, it all depends on what kind of corporation you are. He says that large, multinational corporations have many more strategies available to them to reduce tax burdens than smaller, domestic firms do.
It would seem, then, that whatever your concept of fairness is with regards to personal tax rates, the corporate tax regime in America is blatantly unfair, with some corporations not paying enough and others shouldering too heavy a burden.
Actually, there is no tax fairness. See: Which taxes are fairest? Which taxes are least fair? Talking about which taxes are fairest is like talking about which religion is best.
Oddly enough, the best way to make corporations pay their fair share may be to do away with the corporate tax altogether. No matter what Mitt Romney says, corporations aren’t people. Their profits, however, are ultimately distributed to people, whether it be shareholders or employees.
It is true that corporate America is currently hoarding cash . . .
Wrong. It is not possible to hoard cash, unless you bury it in your backyard. Whatever you do with cash, it goes into someone else’s hands — with just one exception: The purchase of T-securities.
Economist and blogger Ed Dolan argues for shifting the burden of income tax from the corporation to its proprietors, saying at the very least that the corporate tax rate should be lowered, its loopholes eliminated, and that capital gains should be taxed as ordinary income. He also suggests that the corporate tax could be eliminated altogether, and replaced with more broad based taxes on energy or consumption.
Shifting corporate taxes to proprietors, or to any other private parties, makes no sense. It solves no problems. It would remove dollars from the economy.
So are we moving to a point where we officially eliminate taxes on corporations? For obvious reasons, this is not politically feasible. Most proposals in Congress involve lowering the nominal corporate rate but at the same time removing loopholes that allow companies to pay well below the nominal rate.
It’s not politically feasible only because the public has not been educated. A modicum of courage would be required for a politician to say truthfully, “The government doesn’t use the tax money paid by businesses, and in any event, businesses don’t really pay taxes. You do — as an employee or owner of a business. The tax money comes right out of your pocket.”
We simply should eliminate the corporate tax and allow the dollars to go into the economy rather than to disappear as tax payments. The federal government doesn’t need or use tax money, so why do we want corporations to undergo that added expense?
The latest GPO budget report says corporations will pay $329 billion in federal taxes this year, about 10% of all federal taxes collected. That’s $329 billion removed from the economy and destroyed — for no purpose whatsoever — money that if left with businesses, would grow the economy, reduce unemployment and benefit every American.
As with so many arguments about economics, the corporate tax discussion devolves to a discussion of Monetary Sovereignty. If you understand Monetary Sovereignty, you know that corporate federal taxes take money out of your pocket and slow the economy.
Business is the goose from which we all receive our golden eggs. Taxing business is like stealing the goose’s grain, then cooking the goose.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports
10 thoughts on “–How to starve the goose that lays the golden eggs: Taxing business”
Corporations don’t pay taxes, they collect them.
A simplified, low-rate, no-loophole corporate tax on receipts (not profits) would be very efficient and broad-based, and drastically reduce compliance costs and enforcement costs, and distortions. It would enable closing the dividend loophole in the personal income tax, as dividends could no longer be said to be doubly taxed, thus making it more progressive and reducing enforcement and compliance costs there as well.
But, the more urgent argument is not about HOW to collect taxes, but HOW MUCH.
The question is neither HOW nor HOW MUCH, but WHY? Federal taxes have not had any positive purpose since August 15, 1971, and have enormous negative consequences.
Have you seen this latest act of stupidity?
H.R.3551 – Social Security Preservation through Individual Choice Enhancement Act
When people don’t understand Monetary Sovereignty, nearly every act regarding federal taxes and/or federal spending tends to be stupid. This one is no exception.
You seem to focus mainly on taxes as a source of (unneeded) federal revenue. Under MMT, the purposes of taxing also include giving value to the currency and leaving room for sovereign spending with reduced danger of inflation. And many taxes (probably most of those paid by less well-off people) go to monetarily non-sovereign state and local governments. The last issue might be dealt with (as I believe you have suggested) by federal funding for states and cities. How do you propose dealing with the issues MMT addresses?
MMT points to supplyof money as being the main culprit in inflation (i.e., loss of value for money). They ignore demand for money (i.e. interest rates), and in fact think high rates cause inflation.
There is no historical evidence to support their conclusions.
Since 1971, when we went off the gold standard and became Monetarily Sovereign, there has been no relationship between money supply and inflation. See: https://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/ and http://research.stlouisfed.org/fredgraph.png?g=4Rv
Rodger Malcolm Mitchell
I’d still unenthusiastically vote for a bill like Cap and Trade because I believe global warming is an even greater threat than a stagnant economy.
Unfortunately, when speaking of transnational corporations headquartered herein the US, the monies retained by eliminating the corporate tax will seldom be invested within the US economy but rather it is moved to purchase foreign businesses in places where for the most part profits can be maximized due to extremely low wage structures. Many of your ideas seem to not take into account globalization.
” . . . seldom be invested within the US economy . . . “ Oh really? How often is “seldom”? What is your data?
If only “some” of the money is invested in America, we come out ahead. In fact, if corporate taxes were reduced by $1 billion and only $1 were invested in America, we still would come out ahead — by one dollar. The $1 billion tax reduction costs us nothing.
Your idea seems not to take into account the realities of Monetary Sovereignty.
And by the way, adding dollars to the global economy benefits the U.S. by enriching the world, which provides more and better goods and services for us to purchase and use.
While this made sense in the past – currently the tax reductions are used to employ people overseas. How does this make any sense?