Lowering Corporate and Manufacturers’ Tax Rates Problematic

President Barack Obama is proposing to lower the corporate rate to 28 percent and close some tax loopholes. Some manufacturers would get a tax rate of 25 percent. There are a number of reasons why these proposals might not be a good idea:

1) the Congressional Budget Office has found that about two-thirds of U.S.- chartered corporations do not pay any federal income tax;

2) a study of the top 100 companies in the Fortune 500 found that 25 of them pay their CEOs more than they pay in federal income tax;

3) several surveys have shown than lack of consumer demand, not taxes, is the major reason companies cannot expand and hire more workers;

4) before the Reagan tax cuts, corporations provided about three times as much in federal government revenue as they do today — they also provided almost double the revenue for state governments than they do today;

5) closing the tax loopholes previously identified by President Obama would not make a significant dent in the national government’s budgetary debt;

6) although U.S.-chartered corporations have a higher tax rate than do most of the other industrialized nations, when you factor in exemptions, deductions, generous depreciation rules and tax credits, U.S.-chartered corporations wind up paying lower rates than the aggregate of the other industrialized nations; and

7) since the U.S. Supreme Court ruled in Citizens United that corporations can contribute unlimited amounts of money to political campaigns, they should not be taxed at a rate lower than those individuals in the higher tax brackets — if corporations are people, they should not pay a lower rate than many people do.

President Obama has largely bought into the GOP position that lowered taxes are the solution for many of the economic problems being faced by the U.S. Obama has made frequent mention of how much he has cut middle-class taxes in his tenure in office. With the extension of the payroll tax cut through 2012, the total tax cuts in the last three years approach the $1 trillion mark. Since Obama proposes to raise $1.5 trillion in revenues over the next ten years, two crucial questions must be asked: 1) Will that $1.5 trillion be an aggregate increase of about $2.5 trillion to cancel out the nearly $1 trillion that has already been cut? and 2) How much of the tax increase will take place after President Obama has left office, assuming he wins a second term?

We don’t know, of course, if President Obama is done cutting taxes: for instance, if recent signs of an economic recovery prove to be illusory and the economy seriously falters, wouldn’t Obama be almost compelled by his argumentative rhetoric of the recent past to seek another extension of the payroll tax cut, at minimum? The 2012 payroll tax cut is seen as a big political victory for Obama but it carries within it the seeds of future serious budgetary trouble.

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