Corporate Taxes: A Story Worth Repeating

We have been hearing from Republicans, corporate leaders and Democrats that “we have the highest corporate tax rate in the world”. When I hear more thoughtful conversation on the subject rather than political talking points, I get glimpses into the real story.  The claim is that because of our high corporate tax rate, we cannot attract investments that would translate into American jobs. “We need to bring back manufacturing to America”. The big question is ‘why haven’t the republicans proposed any flat rate corporate tax in the two years that they have held control in the House especially when this is what they claim we need’?

Historically corporate taxes are at their lowest since post Great Depression. The tax statutory (what is law) corporate tax rate was at 40% under Reagan for seven years of his presidency. The trend has been a continuous decline of effective tax rates for corporations. The current rates range from 15% to the top rate of 35%. The graph below is the end results of an elaborate tax code that draws down the effective tax rates paid.

A visual comparison to other nation compliments of thinkprogress.org

Based on a report from the Center on Budget and Policy Priorities, our current statutory corporate tax rate ranges from 15%- 35%. This represents the highest corporate tax rate among the top 19 Organization for Economic Co-operation and Development (OECD) nations. Unlike other OECD nations who have a flat tax rate, the USA has a generous tax code that brings our average effective corporate tax burden down to 14%. This is lower than the average flat tax rate of 16.1% of other OECD members. In addition, according to the US Dept. of Treasury, there is an average of 25% of corporations that have no federal tax liability each year.

The argument that corporate tax rates alone are depressing jobs in America does not generate a complete picture. First, manufacturing is growing in the USA, however technological advances have suppressed the need for workers. We cannot compete with a dollar an hour wage and lack of workers’ rights or benefits. Environmental protections create an added cost, but is it worth polluting our rivers and lands again to eliminate these barriers to extraordinary profits? We are lacking both enforcement of existing trade policy and smart trade policy to compete against countries like China. Demand, demand, demand. The disparity of wealth has pushed the nation’s wealth to the top and out of the hands of the real job creators. It is the middle and lower upper class who generate demand for products and this disparity has to be resolved if we want our economy to grow strong again.

A lower corporate tax rate would benefit small business the most, but a lower flat corporate tax would be the fairest, least complicated and financially helpful to our largest job creators in the small business world. Larger corporations are sitting on over 2 trillion dollars in profits. Even our current tax rates haven’t diminished their profitability. 80% of our multinational corporations have tax havens in places like the Caymen Islands. President Obama has supported lowering the highest tax rate to 28% while closing tax loopholes that the largest corporations enjoy.

My position stands. With the amount of money and influence in Congress it begs the question ‘what influence do those corporations who pay little to nothing have on reforming the corporate tax code’? Secondly, if our effective tax rate is lower than the average nation, why would they be motivated to change it especially if certain powerful corporations pay no tax at all?

Sources:

IRS, Statistics of Income Bulletin, Fall 2003, Publication 1136 (Rev. 12-03)Corporation Income Tax Brackets and Rates, 1909-2003

Putting U.S. Corporate Taxes in Perspective. By Chye-Ching Huang and Chad Stone. October 27, 2008. http://www.cbpp.org/cms/?fa=view&id=784

Contrary To GOP Claims, U.S. Has Second Lowest Corporate Taxes In The Developed World, By Marie Diamond on Jul 5, 2011. http://thinkprogress.org/economy/2011/07/05/260535/graph-corporate-tax-second-lowest/