Misinformation on Taxing Corporations

This blog is a continuation of the theme that misinformation, intellectual laziness about providing adequate explanations and plain old-fashioned lying is making it a difficult task to sustainably fund our national government. The focus of this blog is on corporate taxation.

Perhaps the most distressing finding about corporate taxation is that the Congressional Budget Office has concluded that two-thirds of U.S.-chartered corporations pay no federal income tax. A study of the top 100 corporations in the Fortune 500 found that 25 paid their CEOs more than they paid in federal income tax. A 2008 study by the Government Accounability Office showed that 83 of the 100 largest corporations operate subsidiaries in nations that are considered to be tax havens.

Horror stories abound about corporations with very large profits paying little or no income tax and a brief look at just one reveals the egregious nature of our corporate tax structure. General Electric earned $14.2 billion in profits in 2010, paid no corporate income tax and actually accumulated $3.2 billion in tax credits.

Those who insist that tax cuts and reduced regulations will lead to major job gains, ignore the surveys that show businesses cite consumer demand as the major factor in expanding their operations — tax inducements and elimination of regulations lag behind.

Bringing the discussion to my personal level, I was a village trustee in Park Forest South, Illinois — the name was later changed to University Park while I was a trustee. As one of President Lyndon Johnson’s planned communities, our village had a very large industrial park. As one of my responsibilities as a village trustee, I studied the effect of tax incentives on corporate location decisions. I found many cases in which corporations which had received tax incentives opted out when relocation would bring them economic advantages exceeding the value of their tax breaks.

I now live in Albuquerque, New Mexico. A major breaking story within the past month was the gradual closing down of a solar energy company which had received some $50 million in tax breaks as part of the effort to bring the company to Albuquerque. At the same time, two other large employers which had received tax incentives, announced major layoffs of workers.

It was, I believe, in the past year that a story broke that the giant Intel Corporation, located in Rio Rancho, an adjoining suburb of Albuquerque, had a spotty record of meeting goals for hiring area residents, as part of a tax break agreement.

As for regulations leading to job losses, the Bureau of Labor Statistics collects data from companies that lay off workers.  Company executives reported that 0.3 percent of those laid off in 2010 lost their jobs due to “government regulations/intervention,” while 25 percent were laid off due to a slowdown in business.

“Based on the available literature, there’s not much evidence that EPA regulations are causing major job losses or major job gains,” Richard Morgenstern, who worked at the EPA starting under the Reagan administration, told the Washington Post.*

A study by Morgenstern and others looked at the effect of regulations on pulp and paper mills, plastic manufacturers, petroleum refiners, and iron and steel mills between 1979 and 1991. The study concluded tha higher spending to comply with environmental rules did not cause “a significant change” in industry employment, and when jobs were lost they were often made up in the same industry.**

An argument for lowering corporate tax rates is that such action would help U.S.-chartered corporations be more competitive internationally. The Organization of Economic Corporation and Development (OECD) found that even though corporate tax rates in the European Union were nominally higher than the corresponding rates in the United States, due to more generous U.S. tax breaks, the EU corporations pay more in taxes, on average. Note here that if the United States were to adopt a single payer health insurance plan, it would relieve U.S. companies and corporations of a very large cost burden.

Finally, it should be noted that prior to the Reagan tax cuts, corporations contributed about three times as much to national government revenue as they do today. So if we could peel away the layers of false information about the corporate tax burden, we would be further along in advancing to the prosperous three and one-half decades after World War II.

*”Gov’t Regulations Don’t Kill Jobs, Labor Bureau Stats Show,” Newsmax. com, November 14, 2011.

**Ibid.

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