As I write this column, the view from Rattlesnake Ridge takes in not just the beautiful wandering Baker River but the screen of our tiny TV in the kitchen, feeding us nearly constant news about the aftermath of Hurricanes Irma and Harvey.
Right now I can’t help but say that this column should be discussing an Infrastructure bill to blend the massive cleanup efforts with planned spending on critical infrastructure that serves the interests of both the long-term national needs and the immediate needs of the states ravaged by Irma and Harvey.
For whatever ill-conceived reason the Trump Administration has chosen to focus on reforming the Corporate Income Tax. I understand that tax reform is on the agenda, but Nero is fiddling while Rome burns; and, hell, it’s just a shame to waste a real crisis that presents an opportunity for getting Congress to sheath their partisan daggers and work together.
Almost no details are yet available from the hallowed halls of Congress and no one is expecting any from the White House where they are too busy tweeting and backfilling, but we are told that Congress is working diligently on this, seeking to reduce the rate of the Corporate Income Tax.
So, here’s the view from Rattlesnake Ridge.
Eliminate the Corporate Income Tax entirely. Get rid of the whole damn thing and send all those lawyers and lobbyists, who suck up all of the oxygen in the Capital, vying for exceptions, incentives and special treatment, home. Bump up the tax on capital gains to the same rate as other income and put a small transfer tax on stock sales (say $1.00 on the sale of $400 of stock) and we will raise three times the revenue, cut the size of the bureaucracy at IRS by half, and the taxes will fold neatly into the progressive personal income tax structure. This means that the taxes on corporate profits will fall most heavily on the wealthy. A little something for everyone from Steve Forbes to Robert Reich!
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| Mushroom Borealis |
The Corporate Income Tax generates a very small proportion of our nation’s revenues, yet creates an incentive for large corporations to move off shore and a disincentive for businesses that have already moved offshore to repatriate their companies and their money. It also falls disproportionately on small and medium sized businesses who can’t afford the lobbyists and lawyers needed to procure special treatment. They end up being the only ones who pay the alleged 35% tax rate.
Elimination of the tax will bring a flood of new revenues into the country and encourage businesses to use their profits for productive activity including the generation of jobs and new revenue streams, instead of tax avoidance. This will be especially true if the tax reform includes some means of assessing taxes on shareholders of companies that try to hoard their money in a zero tax environment - several effective ways for doing this have been suggested.
Recent studies have shown that the Corporate Income Tax is paid largely through higher prices, lower share value and lower wages. According to economist Laurence Kotlikoff, elimination of the Corporate Income Tax “leads to a huge short-run inflow of capital, raising the United States’ capital stock (machines and buildings) by 23 percent, output by 8 percent and the real wages of unskilled and skilled workers by 12 percent.” A 12 percent increase in wages would be the first real increase in wages in more than twenty years, though workers will still be in the hole after so long.
In fact a case can be made that the Corporate Income Tax and its legacy of capital flight, in conjunction with automation, has played a significant role in creating a generation of declining wages for both unskilled and skilled workers who do not have the ability to move.
Eliminating the Corporate Income Tax provides an opportunity for political leaders from both parties and all parts of the political spectrum to build consensus and begin the hard work of addressing the growing inequality of income in our country. Perhaps Democrats would be even be able to find a home for an increase in the minimum wage somewhere in the mix.
Funny thing is, I use to think all this was a good idea. Some nonsense about how the tax incentives and exemptions served as a fiscal gyroscope for the economy or some other asinine rationale. No more. Twenty years of watching my friends and neighbors struggle to live on steadily declining real wages while huge corporations like GE, Mobil, and even our pals at Eversource went years when they paid nothing in taxes - even while their shareholders could sell stock and pay less than my working friends paid for their wages - convinced me that this was one experiment that belonged on the ash heap of history.
The bottom line is this, and economists, on the left, the right, and here in the radical center, agree: businesses don’t pay taxes, people do. Call it what you want but those taxes are borne by real flesh and blood folks.
Congress should stop diddling around the margins and throw the whole damn thing out. We’d be better off for it.
Oh, and tell the last lobbyist, disappointed by the end of special interest tax breaks, not to let the door hits him in the ass on his way out.
Notes and Links
Corporate Income Tax: Who’s Paying and Who’s Not.
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