Taxes Driving Corporations Away

If you listen to financial/business news you should have noticed an increase in the number of corporations moving their business to other countries.

Generally avoiding corporate taxes is given as one, if not the primary, reason.

Is there any better evidence that corporate taxes are too high?

Our corporate taxes are the highest in the world and corporations are ‘voting with their feet’ by relocating to places with lower tax burdens.

Let’s take this one step further.

What would happen if the United States eliminated the corporate tax?

  1. The government would lose about $300 billion in revenue which is about 10 or 12% of all revenue.
  2. Our corporations would not be looking for tax havens and taxation would no longer be a reason to relocate.
  3. Corporations in other countries would look to the U.S. as a location for their business.  (No other country has a zero tax on corporations.)

This has the potential to be the single greatest job creator that our government can actually do.  Virtually all other actions are simply supposed ‘stimulus’ to private industry to create jobs.  Most completely fail because our government representatives simply don’t understand business and the unintended consequences of their actions.

The only issue with eliminating the corporate tax is the loss of revenue.  It seems virtually impossible for the government to cut their spending.  The very best we can hope for is to hold down growth.  Because of this it will be necessary to recover this lost revenue from some other source.

To me the obvious place to recover this lost revenue is by taxing capital gains, dividends and interest as ordinary income.

The argument against this has always been that it is double taxation since the corporations has already been taxed on its earnings.  If we eliminate the corporate tax this is no longer true.

Another argument is that taxing capital gains will limit the re-investment of those gains.  This may be true, but what other use of these funds will generate more income?  I doubt very much that capital availability will be reduced by this change.  The other thing to consider is that the affected corporations will either lower their product cost, or accumulate more cash which they must invest.

The big advantage of this change is that it eliminates the most visible inequity in taxation on individuals.  The fact that the ultra rich get much of their wealth from capital gains is a bone of contention that is recognized by all.

We can encourage job creation in the U.S. and these new jobs are not ‘low wage’ hamburger flipping or WalMart clerk jobs.  They are premium jobs with potentially high wages.

At the same time we could alleviate one of the major ‘points of contention’ between the ‘rich’ and the rest of us.

I can’t prove how much revenue taxing capital gains, dividends and interest as ordinary earnings will generate, but I’m pretty sure that it is much greater than the $300 billion potentially lost from corporate taxes.

I’m reasonably certain that this change will increase revenue which could afford the opportunity to reduce the tax rate on ordinary income.

And we must not forget the new jobs created that will generate even more revenue from taxes on income.

I am opposed to taxing income, but since there is little interest in changing the income tax, I offer this as an improvement over the existing tax code.  

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