6 Reasons Trump Should Abolish Corporate Income Tax Link
Corporate taxes are back in the news again, this time with Apple appealing the E.U. tax demand for $14 billion (see report from Reuters.) At issue is the rate of corporate income tax Apple AAPL -1.01% pays in Ireland. "Apple's Irish tax bill implied a tax rate of 0.005 percent in 2014," according to European Competition Commissioner Margrethe Vestager, the Reuters report states.
Whether the actual rate it pays is that low isn't the major issue. What we do know is that big companies, like Apple, do what they can within the law to avoid paying taxes. In some cases, no taxes are paid, which will no doubt outrage many people.
It shouldn't. The bigger outrage is that we have corporate income tax at all.
The truth is that abolishing it should be at the top of the agenda for president-elect Donald Trump. When that happens we'll all be better off.
Here are some reasons why:
If corporations don't pay tax, why have one? When I recently suggested that plans by the new administration to slash corporate taxes would be good for economic growth, a former professor of mine retorted that such a move was silly because many companies don't pay income tax anyway.
If that is true (that corporations don't pay income tax,) then why have a corporate tax? Surely, we'd be no worse off. We might actually do better. (The Tax Policy Center says approximately one-in-10 tax dollars comes from corporations. But as addressed below, this is more optics than anything. And yes we'd be even better off.)
1. The system is broken. The Apple example from today's news shows how crazy the corporate income tax issue has become. The standard rate of tax on worldwide income for Apple, as with all U.S.-based companies, is 35%. Yet for the income routed through Ireland the result was less than one hundredth of one percent, at least according to the E.U. The Reuters report cites a 3.8% tax rate over the last decade on $200 billion overseas profits for Apple. Either way, it's not Apple's fault that the tax system is mind bogglingly complex. Companies can and should use the rules in their favor.
2. Corporate tax rates lower growth. When U.S. companies make decisions about whether to invest in new projects they assume that they will have to pay the standard 35% tax rate (this is best practice -- I know, I have been in that seat.) That rate is used even if the company hasn't paid tax in years. It might sound nuts, but there are good reasons for it. The simplest way to understand this method is the idea that the new project might push the company's income into the black and thus trigger payment of 35% income tax on each additional dollar of profit. The problem, at the corporate level, is that assuming the 35% rate tends to crush the value of potential projects into oblivion (in short, they don't get approved,) which in turn crushes direct investment in new factories, and so lowers economic growth. Investment is a key to long-term economic growth and jobs, and corporate income tax hurts that.
3. Consumers pay for corporate tax. Corporate tax adds an additional hurdle/cost to any corporation wishing to bring a new product to market (see above.) In the end, any cost that the corporation needs to pay will be passed along to the consumer. It has to be passed along, otherwise the company would lose money. That means any level of corporate tax hits the consumer, the higher the corporate tax rate the higher the cost to the consumer. Or put a different way, abolishing corporate taxes would benefit already cash-strapped households through lowered costs of new products.
4. Corporate tax favors big companies over small business. Many small businesses in the U.S. still pay the standard 35% tax rate on income, while (at least some some) big companies use complex schemes to route the money through legal tax-avoidance loopholes. That's because those big corporations have enough scale to afford the accountants and tax attorney's to do so; small companies, not so much. Small businesses have traditionally been the engine of job creation in the U.S. Wouldn't it be nice to level the playing field for such companies by abolishing the corporate tax altogether?
5. Corporate income tax doesn't spur technological innovation. Money spent on avoiding taxes goes into the pockets of lawyers and accountants. While there is nothing wrong with that per se, it does mean that the same money cannot go into developing new inventions such as disease-busting pharmaceuticals, or amazing new gadgets. Innovation is a large part of what has made America by far the largest economy in the world -- scrapping the corporate tax would help keep it that way. Footnote on the apparent budget gap from abolishing corporate taxes.
It is in the combination of items 2 and 3 that takes care of the apparent Federal budget gap, those one-in-10 tax dollars that appear to come from corporations. They don't. In reality consumers pay the tax in the form of higher prices. Corporations merely send it to the government. The corporate budget contribution is an illusion. You paid. One solution to the budget gap from abolishing the tax: A few pennies on personal income tax. It might not sound fun, but lower prices of goods should offset the cost. There's likely to be a further impact. Untaxed corporations will invest far more, hire far more, so lifting wages, and so make households better off than they would have been.
Take risks - if you win you will become wealthy, if you lose you will become wise
It's a useless stop gap to the impending bond defaults in the western world.
Bond defaults used to he confined to developing Asian and African countries and 2nd world countries like Argentina and Russia.
It will start with lower tier G20 countries like Turkey and collapse with Japan, USA, and EU members.
The war on cash and reversing corporate inversion is a useless stop gap to fill the coffers of bankrupt governments.
They will soon realise the folly of unfettered debt issuance through "safe" "government-guaranteed" bonds.
The game plan was fine with inflation, but can't melt away government debt with deflation.
Gold is the answer however you look at the end game - monetisation of debt by central banks, issuance of more bonds to rollover the debt, defaulting on bonds,confiscation of cash to pay the debt, printing of cash to inflate away the debt, contraction of the money supply by writing off the debt, or rebalancing central bank balance sheets by repricing gold to $10,000 or more per ounce.
It's a useless stop gap to the impending bond defaults in the western world.
Bond defaults used to he confined to developing Asian and African countries and 2nd world countries like Argentina and Russia.
It will start with lower tier G20 countries like Turkey and collapse with Japan, USA, and EU members.
The war on cash and reversing corporate inversion is a useless stop gap to fill the coffers of bankrupt governments.
They will soon realise the folly of unfettered debt issuance through "safe" "government-guaranteed" bonds.
The game plan was fine with inflation, but can't melt away government debt with deflation.
Gold is the answer however you look at the end game - monetisation of debt by central banks, issuance of more bonds to rollover the debt, defaulting on bonds,confiscation of cash to pay the debt, printing of cash to inflate away the debt, contraction of the money supply by writing off the debt, or rebalancing central bank balance sheets by repricing gold to $10,000 or more per ounce.
Is that the "impending bond defaults" you've been on about for more than 12 months with no success?
Righto. Decimate the big consulting firms (Deloitte, PwC, KPMG, EY) who thrive on corporate tax foundations globally. Far too politically sensitive and profitable to remove these guys for any perceived benefits from removing corporate tax.
Righto. Decimate the big consulting firms (Deloitte, PwC, KPMG, EY) who thrive on corporate tax foundations globally. Far too politically sensitive and profitable to remove these guys for any perceived benefits from removing corporate tax.
I don't think that would happen. Companies still would need to be audited, it's just that their rate of tax would be zero. Frankly I don't believe the author expects any of this to happen, he's just throwing it out there. What most people don't understand is that a company pays the tax it chooses to pay. Most if not all of the profits are distributed to shareholders, either as direct wages in the case of small family companies, or dividends in the case of public companies.
If a public company pays tax then all dividends have a tax credit attached to them called a "Franking credit" They would choose to pay tax before issuing dividends because that what they feel benefits their shareholders the most, if it didn't they would pay unfranked dividends to their shareholders and the company would pay little if any tax. At the end of the day each shareholder/owner receives a profit from the company and that individual pays tax on their personal income, so company tax rates really don't apply.
Dividends paid to a non-resident attract a 30% "withholding tax" so the argument that foreigners wouldn't pay tax is incorrect, they pay 30% regardless of company tax rates.
It will never happen, but at least a few people might think about the tax structure we have (similar to the USA) and question whether it could be better.
Take risks - if you win you will become wealthy, if you lose you will become wise
I don't think that would happen. Companies still would need to be audited, it's just that their rate of tax would be zero. Frankly I don't believe the author expects any of this to happen, he's just throwing it out there. What most people don't understand is that a company pays the tax it chooses to pay. Most if not all of the profits are distributed to shareholders, either as direct wages in the case of small family companies, or dividends in the case of public companies.
If a public company pays tax then all dividends have a tax credit attached to them called a "Franking credit" They would choose to pay tax before issuing dividends because that what they feel benefits their shareholders the most, if it didn't they would pay unfranked dividends to their shareholders and the company would pay little if any tax. At the end of the day each shareholder/owner receives a profit from the company and that individual pays tax on their personal income, so company tax rates really don't apply.
Dividends paid to a non-resident attract a 30% "withholding tax" so the argument that foreigners wouldn't pay tax is incorrect, they pay 30% regardless of company tax rates.
It will never happen, but at least a few people might think about the tax structure we have (similar to the USA) and question whether it could be better.
You obviously don't understand where consulting coys derive their power.
You've purchased insurance against making money. You can keep it.
I don't need to make money because I already have money. I'm just converting some of my digital/paper money into metal money. The best kind of money. Indestructible and undebasable.
Unlike you who's eating noodles to funnel to the bank each paycheck to the 30-year debt you were fooled into getting and who can take away your collateral anytime.
Did you hear the joke about the Irish and the incredible stupidly low tax rate they gave the world richest company?
They sank the little money they got from it into a housing bubble that f***ed them up more than the IRA every could, forcing even more of their young people to flea that seemingly godforsaken place.
WHAT WOULD EDDIE DO? MAAAATE! Share a cot with Milton?
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