If the past predicts the future, it will not be the American workers or the middle class who benefit. Larry Kotlikoff: You are confusing the marginal and the average corporate income tax rates. The U. In contrast, the average tax rate — the amount of total taxes actually collected divided by total profits — is quite low thanks, in part, to companies producing abroad to avoid the high marginal tax.
In the extreme, we could have a percent marginal corporate income tax, which would drive out all corporations and, therefore, produce zero tax revenue. So yes, Carrie, the average corporate tax rate is very low. But the marginal corporate tax rate in the U. The point of my op-ed was to draw the distinction between the marginal and average tax rates and point out that the main impact of our corporate tax today appears to be to discourage production within the U. See, for example, my offer to run Barclays. I think the main impact will be, as it was in Ireland, to expand corporate production in the U.
As for CEO compensation, my hunch is that it reflects, in the main, back-scratching deals between CEOs and members of boards of directors. A corporation can hold on to its profits for years before paying them out as dividends. With no corporate income tax, rich people could create shell corporations to defer paying individual income taxes on much of their income indefinitely. Second, even when corporate profits are paid out as stock dividends , only a third are paid to individuals rather than to tax-exempt entities not subject to the personal income tax.
If not for the corporate income tax, most corporate profits would never be taxed. Third, the corporate income tax is ultimately borne by shareholders and is therefore a very progressive tax, which means that repealing it would result in a less progressive tax system.
15 thoughts on “Let’s abolish corporation tax”
The Treasury Department concludes that 82 percent of the corporate tax is borne by the owners of stocks and business assets, who mostly have very high incomes. Eliminating the corporate tax and raising income tax rates or lowering the corporate tax rate and eliminating its loopholes are not the only options. This leaves companies with no tax reason to avoid operating in the United States but ensures that shareholders, not wage earners, make up for any revenue losses through higher personal tax payments.
Instead, it forces them to pay taxes annually and at the personal level on these profits as they are earned. And since taxes are paid by shareholders as they are earned, there is no need to worry, as you are doing, about having corporations shelter profits. Again, their annual profits would be calculated and imputed to their shareholders for immediate personal taxation. And the shareholders would owe the same tax on their corporate profits regardless of how much corporate profits were either retained or paid out in dividends.
If we raise the U. The key concern I have, and I believe you share, is about U. As my study shows, inducing companies to produce in the U. And doing so by imputing corporate profits to shareholders for taxation at the personal level will preclude benefiting the rich. To the Editor: Laurence J. Kotlikoff offers an example of how corporate tax reform is an issue that can unite Democrats and Republicans, as well as corporations and workers.
President Obama, Speaker John A.
Ryan, a Republican, shows, the country is hungry for bipartisan agreement, and there is no better opportunity than the simplification of the corporate tax code. Now is the time for compromise that leads to sustainable economic growth, higher employment and creation of those jobs. Kamarck is a former adviser to President Bill Clinton and a senior fellow at the Brookings Institution.
The Netherlands - Tax changes – corporate income tax
Kotlikoff rightly points out the economic benefits of eliminating the corporate income tax. Even though consumers ultimately pay these taxes through higher prices, political support for eliminating it would be difficult to come by, especially on the left. However, if we eliminated special treatment of capital gains and dividends at the same time, we could garner wider support and realize a more just and simpler tax code.
Larry Kotlikoff: I think, and economic theory confirms, that in economics in which capital is mobile, workers bear the corporate tax burden, not via higher prices, but via lower wages. The Common Sense Tax would tax corporate profits as they are earned, but at the personal level. In the process, we could eliminate capital gains and dividend taxation and, as you say, end up with a more just and simpler tax code. What would really help working families is having corporations once again pay their fair share of taxes, so that we can adequately finance new investments in education, medical research and infrastructure repair to grow the economy.
That means closing offshore tax loopholes that reward corporations for hiding profits and shipping jobs overseas. In the s, corporate tax receipts represented about a third of federal revenue; now they make up only 10 percent. When corporate taxes decline, everyone else pays more to make up the difference, or loses valuable services and benefits. American workers win when corporate tax loopholes get closed.
Larry Kotlikoff: I think we are talking past each other to a large extent. The Common Sense Tax does eliminate all loopholes by imputing to shareholders the global profits earned by their corporations as they make those profits. But by taxing global profits this way and not differentially taxing profits made in the U. To the Editor: While Laurence J. That organization, at which Mr. Kotlikoff is a senior fellow, is a right-wing policy think tank that advocates ideas in furtherance of free market economic policies and that receives substantial financial support from foundations set up by the Koch brothers and the Sarah Scaife Foundation, among others.
Given these associations, Mr. Larry Kotlikoff: If you go to www. The center uses models developed over two decades by Boston University economist Laurence Kotlikoff.
- God Called Me a Lusty Stallion.
- Abolish Corporate Income Tax?.
- Seven reasons why taxing company sales instead of profits is a non-starter.
- ARTISTIC IMAGES Vol 1 BY T W PIEHL (Photography by PIEHL - Photo Book Series).
So, yes, the NCPA, is the current sponsor of some of my tax research, but that research is exploring models that have been developed over decades with the support of a large number of academic and multinational institutions. They could be the most right or left wing people in the world.
Did you know that Burger King is about to become a Canadian company. Walgreens is about to become Swiss. And Medtronics is set to become Irish. What does this mean to you and me? Not much of anything.
Why We Should Abolish Corporate Taxes: Evan Soltas
Although Burger King could actually move to Canada, in most cases like this the corporate headquarters stay put. So do the managers and workers. The same thinking is going on at Walgreens and Medtronics. In fact they owe it to their shareholders to do so. The real problem here is the corporate income tax.
And although most companies manage to pay much less than that amount, they do so by to taking advantage of loopholes, deductions, credits, etc. But those tax reducing activities require the use real resources. When companies change how they produce things solely to accommodate the tax law that makes the entire structure of industry much less efficient than it would otherwise be. So Britain should tax companies based on what they do in Britain. France should tax whatever happens in France.
But we tax our corporations on income they earn in countries all over the world! As Mankiw explains:. Most nations recognize this principle by adopting a territorial corporate tax. They tax economic activity that occurs within their borders and exclude from taxation income earned abroad. That foreign-source income, however, is usually taxed by the nation where it is earned. Six of the Group of 7 nations have territorial tax systems.