America the Uncompetitive
Economists at the Organization for International Cooperation and Development released a new working paper titled “Taxes and Economic Growth“ where they studied the effects of various types of taxes on the economic growth of developed nations within the OECD and found that “corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. Recurrent taxes on immovable property appear to have the least impact. A revenue neutral growth-oriented tax reform would, therefore, be to shift part of the revenue base from income taxes to less distortive taxes such as recurrent taxes on immovable property or consumption.” The study adds that “investment is adversely affected by corporate taxation,” and that the most profitable and rapidly growing companies tend to be the most sensitive to high business tax rates.
The U.S.’s high corporate tax rates were a focus of an editorial in the Wall Street Journal last Friday entitled “America the Uncompetitive,” which pointed out that “every month that goes by without tax reform, America is a relatively less attractive place to do business.” Tax Foundation president Scott Hodge stated in a new awareness campain CompeteUSA that ”20 years ago, the U.S. led the world in cutting the corporate tax rate to make our economy more conducive to job creation. Since then, almost every other industrialized country has cut its corporate tax while the United States has stood still, and as a result, the U.S. corporate tax rate is now 50% higher than the OECD average.”
On the CompeteUSA site, the Tax Foundation presents an article titled “What Do Corporate Income Taxes Cost American Families?“ where they state that corporate taxes accounted for 6.3 percent of low-income households’ tax bills last year compared to just 4 percent for individual income taxes. They estimate that American households pay $3,190 on average in corporate income taxes per year.
I think this is the first time I’ve seen someone put a dollar and percentage figure on the corporate tax burden to individuals.
Morphh,
I haven’t studied the report yet, but the $3190 per household in corporate taxes paid doesn’t pass the sanity check. Using the 2006 BHI study data, in 2007, corporate income taxes were $290 billion, and there were 135 million tax filers that year. Comes to just over $2000 per family, not $3200. However, if you include the business share of payroll taxes, the number jumps to over $5000 per family per year.
Maybe I better read the report?
By the way, thanks for putting together that reference list with links to all the Fairtax studies both pro and con. The only study missing is the Linder study that shows that prices will remain about the same??? hahaha!
“Tax Foundation president Scott Hodge stated in a new awareness campaign CompeteUSA that ‘20 years ago, the U.S. led the world in cutting the corporate tax rate to make our economy more conducive to job creation. Since then, almost every other industrialized country has cut its corporate tax while the United States has stood still, and as a result, the U.S. corporate tax rate is now 50% higher than the OECD average.’”
When referring to the U.S. corporate tax rate above, Mr. Hodge appears to be referring to marginal or statutory rates. When comparing such rates, he’s actually comparing rates that nobody pays. In fact, when measured as a either a percentage of profits or a percentage of GDP, the US has one of the lowest effective corporate rates in the OECD.
Along these lines, the GAO recently reported that, between 1998 and 2005, about two-thirds of U.S. corporations paid no taxes at all. Interestingly, while McCain advisor Carly Fiorina is going around the country complaining about our relatively high corporate tax rates, it was reported that she was able to reduce HP’s effective tax rate to 12 percent when she was CEO in 2003.
Personally, I’m for lower marginal rates as long as we eliminate special interest loopholes such as those that actually reward businesses that set up overseas to avoid taxes on profits from products and services sold in the U.S. while simultaneously punishing those that stay.
Every time I read about a study of one thing or another, theres always a bunch of wisenheimers who say it’s not true. Frankly I could care less.
Basic common sense is all anyone needs in order to know that taxing income is extortion and directly underminds the balance of power- the ability of the people to make sure the government is, above all else, protecting our rights, protecting our property, and protecting our borders. We don’t owe anything to government for doing these things for us, we created the government solely for this purpose. If and when government fails to do it’s job, it is our right as citizens to withhold our support from government until it shapes up or shuts down. If the government want to throws us all in prison for that, fine. Let’s all go to prison and see how far the government gets with that plan.
If a corporation paid no taxes, it is typically because they failed to profit that year. Given that MORE than 2/3 of startup corporations ail within 3 years, it’s not so inconceivable that a large number of them paid no taxes.
Under the FairTax, corporations that sell directly to the consumer would need to pay 23% of their gross revenues to the federal government as taxes, regardless of whether they are startups or have no profits.
To me, the idea that they could simply raise their prices or slash their expenses in order to get the cash to make those required tax payments to the federal government seems hopelessly naive, at best, even if their customers have more money to spend.
Some giant corporations might have the pricing power to be able to raise their prices sufficiently to generate those funds. Moreover, giant corporations get substantial revenue from overseas sales where the FairTax would not apply. But startups? Struggling compaines? Forget it. They would be doomed under the FairTax.
Be competitive? Increase revenues?
Allow alcholhol to be purchased on Sunday in Georgia!
Wake up and grow up, Georgia!
What a joke!
If our politicans were really interested in making US corporations more competitive, it would eliminate their health care expense burbens; now running 4X what they pay in corporate taxes. And remember, the taxes only apply to net profits. If they reinvested a larger portion to development, expansion and to their shareholders, they would pay out far less taxes.