America the Uncompetitive - Political Fever

SamInTheSouth · #1 (**permalink**) 08-19-2008, 09:14 PM

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The new international tax rankings are out for 2008, and congratulations to Washington, D.C., are again in order. Our political class has managed to maintain America’s rank with the second highest corporate tax rate in the world at 39.3% (average combined federal and state).

Only Japan is slightly higher overall, though if you are silly enough to base a corporation in California, Iowa, New Jersey, Pennsylvania, or other states with high corporate levies, your tax rate on business income is even higher than in Tokyo. For the first time, the U.S. statutory rate is now 50% higher than the average of our international competitors, continuing a long-term trend as the rest of the world keeps reducing corporate tax rates. (See nearby chart).

Economists argue over how much this tax penalty on corporate profits injures U.S. competitiveness and drives capital overseas. We’ve long believed that it hurts a lot. And now even the folks at the Paris-based Organization for Economic Cooperation and Development (OECD) say they agree.

The Wall Street Journal

I have brought this up several times in the past and it honestly surprises me with how pro business the Bush Administration has been this rate was never cut here in the U.S. It’s astonishing to me that even the Socialists in Europe have figured out something long ago that our own alleged Capitalist government cannot. Corporate tax rates hurt competitiveness. I suppose I shouldn’t be surprised, though, when we have populist Congress critters running around the country preaching about sticking it to big business.

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In Washington, meanwhile, the politicians are still living in their own populist alternative universe. Last week Senator Byron Dorgan of North Dakota waved around a new politically generated study by the Government Accountability Office (GAO) finding that 28% of large U.S. corporations paid no income tax in 2005. “It’s time for big corporations to pay their fair share,” Mr. Dorgan roared.

Well, the Tax Foundation looked at those numbers and found that, among the large companies that paid no taxes, 85% of them also made no profits that year. American Airlines and General Motors escaped income tax for 2005 through the clever tax dodge of losing $862 million and $10.5 billion, respectively. How unpatriotic.

Everyone in this country is constantly complaining about how jobs are moving offshore, well is it any wonder why? Why would a multi-national corporation continue to keep operations in the U.S. when they can move it to Ireland and pay a fraction of the taxes they are paying here? There would be no logic to it. And was proven with the tax cuts on personal income implemented by Kennedy, Reagan, and Bush 43, we have seen that cutting rates reaps more rewards. Example Europe:

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The average European nation has tax rates on corporate income 10 percentage points lower than the U.S., but those countries on average raise 50% more as a share of GDP in corporate taxes than does the U.S., according to a 2007 study by the Treasury Department. Ireland with its 12.5% rate captures a higher share of its GDP (3.4%) in corporate taxes than the U.S. does (2.5%) with its 39.3% rate.

So where do McCain and Obama stand on this issue?

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To correct this revenue dearth, Barack Obama and Democrats in Congress are proposing to pry more tax money out of U.S. companies that have profitable affiliates outside the U.S. Mr. Obama is also shamelessly taking the Byron Dorgan line that the problem is venal U.S. CEOs rather than the nutty U.S. tax code.

One proposal would tax foreign profits when they are earned, rather than waiting until the dollars are brought back to the U.S. This may raise more revenue in the short term, but it would also accelerate the trend of U.S. companies moving entirely offshore, or being bought out by Asians and Europeans so they can escape onerous U.S. taxes.

John McCain has proposed cutting the 35% federal corporate tax rate to 25%. That’s a good start, but even that would leave the U.S. with a combined state and federal rate nearly five percentage points above the global average. With corporate tax rates falling around the world, and with its damage to investment increasingly obvious, abolishing the U.S. corporate income tax should be on the table. Senator Jim DeMint of South Carolina and Congressman Paul Ryan of Wisconsin have proposed replacing the corporate tax with a value-added consumption tax. We worry about a VAT turning into a runaway money machine for government, but something has to give on the corporate tax.

Every month that goes by without tax reform, America is a relatively less attractive place to do business. Over the past 18 months, nine of the 30 most developed nations and 20 countries world-wide — from Israel to Germany to Turkey — have cut their corporate tax rates. Nations are slashing rates to attract capital and jobs from the U.S., and the tragedy is that our politicians keep making it easy for them.

I don’t know that I’m on board with a VAT tax for the reasons the Tax Foundations cite, but I wouldn’t be completely opposed to the idea if the government made substantial spending cuts.

The bottom line is that if you want to know why manufacturing and other industries in this country has gone the way of the dodo look no farther than your own Congressmen.

Condorman · #2 (**permalink**) 08-19-2008, 09:16 PM

Yes, and lets look at the living standards of some of these countries with really low corporation taxes.

SamInTheSouth · #3 (**permalink**) 08-19-2008, 09:38 PM

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Originally Posted by Condorman

Yes, and lets look at the living standards of some of these countries with really low corporation taxes.

There is no correlation I am aware of that shows higher corporate tax rates result in a better standard of living. You are free to provide one if such a comparison exists. The European countries, all of which have a lower rate than we do, invest far more in social welfare programs than the U.S. so that would seem to contradict your notion.

Condorman · #4 (**permalink**) 08-19-2008, 09:54 PM

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Originally Posted by SamInTheSouth

There is no correlation I am aware of that shows higher corporate tax rates result in a better standard of living. You are free to provide one if such a comparison exists. The European countries, all of which have a lower rate than we do, invest far more in social welfare programs than the U.S. so that would seem to contradict your notion.

Since when did social welfare programs = standard of living? They are also looking at 8 USD a gallon over there.

Vietnam, UAE, Tailand, China, Most of Africa, most of SE asia have much lower corporate taxes there.

Of the top 5 nations on the HDI, 4 are above the world average for corporation taxes, and the other makes up with a 21% sales tax (which applys to corporations, so it is a tax that they pay). Of the top 15, 10 are over the average of corporate tax, and the 5 that aren't all have high national sales tax to cover.

Plato · #5 (**permalink**) 08-19-2008, 10:02 PM

It is inaccurate to say that the US is 2nd highest in corporate tax rates, since our corporate tax rates are progressive. Small businesses pay less than large ones. Our rate is 15-39% if you look at only the 39% than we are #7, but most companies don't pay that much and so it is both unfair and inaccurate to say that is our tax rate. One would have to look at how much did all businesses make, and how much did all businesses pay in taxes to get our actual rate. Many nations have a flat 35% and so after the numbers are crunched, I'd bet that they are higher than ours.

Bangladesh (0-40%)
Barbados (40%)
Guyana (35-45%)
India (30-40%)
Saudi Arabia (20-85%)
Syria (10-45%)

These nations all have a higher "top" on their corporate tax rate.

SamInTheSouth · #6 (**permalink**) 08-19-2008, 10:12 PM

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Originally Posted by Plato

Our rate is 15-39% if you look at only the 39% than we are #7, but most companies don't pay that much and so it is both unfair and inaccurate to say that is our tax rate.

The article also considers those taxes tacked on by individual states, which in some as they pointed out, result in us having the highest rate at times.

Michael · #7 (**permalink**) 08-19-2008, 11:16 PM

The recent congression investigation clearly shows that up to two thirds of all corporations DO NOT pay IRS income taxes. Do a search and look up the threads that have already been posted.

Two thirds of FOREIGN companies do not pay taxes.

So who is supporting the US infrastructure they are getting rich off of?

pjohns · #8 (**permalink**) 08-19-2008, 11:29 PM

I remain astounded that anyone would actually believe the myth that corporations pay taxes. More accurately, corporations collect taxes for the IRS, and pass along the hit to consumers (in the form of higher prices) and employees and prospective employees (in the form of fewer new hires, and fewer hours for current employees--perhaps even layoffs, in some cases).

GeneCosta · #9 (**permalink**) 08-20-2008, 12:17 AM

Yes. I think it's self-evident corporations run our government. They're not going to kick themselves in the nuts. For every dollar that actually goes to someone on welfare, three probably go towards subsidization or skipping out on taxes.

Let's also remember that the United States income tax is far lower than most of Europe.

Finny · #10 (**permalink**) 08-20-2008, 12:32 AM

Quote:

Originally Posted by SamInTheSouth

Everyone in this country is constantly complaining about how jobs are moving offshore, well is it any wonder why? Why would a multi-national corporation continue to keep operations in the U.S. when they can move it to Ireland and pay a fraction of the taxes they are paying here? There would be no logic to it. And was proven with the tax cuts on personal income implemented by Kennedy, Reagan, and Bush 43, we have seen that cutting rates reaps more rewards. Example Europe:

And I've been telling everyone here about this. Ireland has a corporate tax rate is 12.5%. It's the fastest growing market in Western Europe.

How Ireland does it.
US talks about it.

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