A New Heresy -- Abolish Corporate Income Taxes
From Obligated to Obligator
Forty years ago, wealthy Americans financed the US government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money. Yet de-taxing corporations could help close the gap. We trim, blend, and append three 2011 articles from: (1) Robert Reich's Blog, May 18, on tax dodging by R. Reich; (2) DownsizeDC, May 18, on taxing business by their President J. Babka; and (3) geophilos on funding infrastructure by F. Harrison.
by Robert Reich, by Jim Babka, and by Fred Harrison
The Great Switch by the Super Rich
Forty years ago, wealthy Americans financed the US government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money. While foreigners own most of our national debt, over 40% is owned by Americans -- mostly the very wealthy.
This great switch by the super rich -- from paying the government taxes to lending the government money -- has gone almost unnoticed.
Between the end of World War II and 1980, the top tax bracket remained over 70% -- and even after deductions and credits was well over 50%. Now it's 36%. As recently as the late 1980s, the capital gains rate was 35%. Now it's 15%.
Not only are rates lower now, but loopholes are bigger. 18,000 households taking in more than a half-million dollars last year paid no income taxes at all. In recent years, the richest 400 Americans have paid only 18% of their total incomes in federal income taxes.
Meanwhile, more and more of the nation's income and wealth have gone to the top. In the late 1970s, the top 1% took home 9% of total national income. Now the top 1 percent's take is more than 20%. Over the same period, the top one-tenth of one percent has tripled its share.
What are America's super rich doing with all this money? They're investing it all over the world, wherever they can get the best return for any given level of risk. Treasury bills -- essentially loans to the US government -- have proven good and safe investments, particularly during these last few tumultuous years.
You hear a lot of worries about foreigners dumping Treasuries if they lose confidence in the dollar because of our future budget deficits. What you hear less about are these super-rich Americans, who are just as likely to abandon Treasuries if spooked by future budget deficits.
The great irony is if America's super rich financed the US government the way they used to -- by paying taxes rather than lending the government money -- that long-term budget deficit would be far lower.
To see the whole article, click here .
JJS: If we donít want the rich to have the money, what business do we have giving them so much money in the first place? Rather than tax them after they got it, wouldnít it make more sense to not give it to them? As economic historians note, the key to great fortunes is not hard work but collusion with politicians, enabling insiders to slough off their costs onto the public while corralling public values into their private holdings.
Oddly enough, de-taxing business -- the business arrangement that funnels so much money to so few people -- might just help the majority non-rich.
A New Heresy: Abolish Corporate Income Taxes
Many people hate corporations. Progressives and populists blame them for a host of sins, and several libertarians assert they couldn't exist in their present form without the State. We at DownsizeDC.org oppose the crony capitalism of the Corporatist State, and we cringe whenever people assume our pro-free market philosophy is a "defense" of corporations.
Our position is that even if you hate corporations . . . abolishing corporate income taxes is in your self-interest.
These taxes are unproductive as revenue-generators, but what they really do is make politicians more powerful, at your expense.
At Reason, economist Veronique de Rugy explodes several myths about the corporate income tax. (To see the whole article, click here .) She demonstrates that . . .
* high corporate income taxes actually reduce employee wages.
* federal revenues from this tax are lower than in other countries, even though we have the highest tax rate among industrialized nations.
* corporate taxes fund a minuscule part of the federal budget.
On the other hand, if we scrapped corporate income taxes entirely . . .
* foreign corporations would move here to take advantage of our ZERO corporate tax rate.
* the ZERO tax rate would cause many new corporations to form that wouldn't have been viable under the old tax system.
* costs to comply with the corporate tax would disappear, leading to expanded investment.
* the number of new jobs would soar, and wages would rise at the same time.
* the resulting economic expansion would more than offset the "lost tax revenue." This would also be a sustainable boom, unlike the booms caused by the Federal Reserve's legalized counterfeiting.
So why isn't this done? Think about a political speech. Early on, the politician promises to end "tax breaks" to corporations. Then, later in the speech, without any sense of irony, he says there should be "tax incentives" to encourage companies to do certain things.
The complicated laws, breaks, and loopholes that the politicians can manipulate let them enhance their own power and importance.
Abolishing corporate income taxes will reduce corporate influence in Congress, by removing a major incentive for lobbying.
JJS: While pulling levers and pushing buttons may motivate politicians, still, corporations are merrily there to evade taxes.
Whatís left out, and as important as the collection of public revenue, is the spending of public revenue. Corporate welfare is what makes business big and insiders rich. Quit wasting public money on business and both business and fortunes will be smaller.
Another major point is public spending tends to push up land values but the publicís agent -- government -- rarely recovers these values it creates, enriching those who can cash in on high land values and impoverishing those who must pay taxes.
Economist Fred Harrison shows how spending on infrastructure benefits some while burdening others. To see the whole article, click here .
JJS: We can make rising land values a boon for everyone. All we have to do is recover them and share them, a la Alaskaís oil dividend. At the same time, itíd make a lot of sense to eliminate counterproductive taxes and addictive subsidies.
The complete policy follows from geonomics and has worked wherever it has been tried.
Editor Jeffery J. Smith runs the Forum on Geonomics.
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