[Originally posted on the MaDemsForum on Oct. 1, 2011.]
In Sudbury, we’ve been trying to write a series of letters to the editor of the local paper focusing on public issues and particularly on Scott Brown’s record. One such letter (by Judy Deutsch) provoked a vituperative reply from one of our town Republicans. I responded in last week’s issue to just one point in that reply. I’m including my letter here, because I think the points are of continuing interest and importance, and worth making in other contexts as well.
–Carl Offner
———————————————————————-
To the Editor:
In her letter of September 8 replying to Judy Deutsch’s letter about Scott Brown, Susan Bistany states that “the corporations that stay here are taxed at one of the highest levels in the developed world…”. Let me address that point.
Corporate taxes are confusing: the basic corporate tax rate is indeed high. In practice, however, it is low, because of so many exceptions built into the law. A better measure is to look at corporate taxes as a share of the Gross Domestic Product. In 2009 it was 1.3%, far below the average rate for OECD countries (roughly, the “developed world”), which was 3.2% — the only country having lower proportional corporate tax revenue was Iceland.
The corporate tax rate is now at a historic low. It’s been steadily decreasing since about 1950, when the economy was expanding and expectations were rising. And while 50 years ago corporations paid 23% of federal taxes, now they pay about 7.2%. The reason given was always that these tax cuts would create more jobs. But they didn’t. The income gap just widened; essential government services took a hit.
So people pay the same as before, but see government services declining. This is then used to justify breaking up unions and firing and degrading the working conditions of teachers and other employees.
Here’s a quote — from Elizabeth Warren, not Scott Brown:
——————————–
“There is nobody in this country who got rich on his own. Nobody. You built a factory out there — good for you.
“But … You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. …
“You built a factory and it turned into something terrific or a great idea — God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”
——————————–
I can understand how some people might feel that slashing taxes for the extremely wealthy and for large corporations might benefit them personally.
What I cannot understand is how anyone could believe that this sort of policy could lead to a society we would want our children and grandchildren to live in.
Carl Offner
have been lowered internationally trying to keep competitive with the US in a game that is similar to sports teams playing cities against each other till everyone losses.
because other countries rely on a VAT, in which corporate taxes are distorting and make little sense except as an available revenue stream.
Were I the Grand Poobah, I would eliminate corporate taxes outright to save the paperwork, and focus on taxing distributions in the form of salary, dividends, and capital gains. That would also entail raising the capital gains rates, of course, which are presently set low because income is already taxed at the corporate level.
The challenge is that it’s not the same for any company- you can’t draw any broad conclusions. If you’re a mostly US only company you’re going to pay close to the top rate.
It you’re a diverse multinational (remember GE Finance is a big part of their profits) you’re going to pay something different.
If you try to beat multinationals up on this they are just going to run to somewhere else.
Picking winners is impossible. In 2008-09 when the auto industry bailouts were being discussed Southern Senators were not supportive. Why? Because they have foreign car manufacturers in their states, and employment would increase if GM & Chrysler bit the dust. if a job is a job does it matter?
So saying “multinationals need to pay more” doesn’t take into effect what might happen if you did just that.
The argument is amazingly complicated.
Ireland is a great example of how to run an economy. I do realize their problem was housing rather than corporate tax policy, but their effort to undercut revenue across the EU has resulted in some real problems.
By this logic, we shouldn’t try to arrest criminals or bust drug dealers because everyone’s going to go somewhere else. There are only so many places you will find a customer base that can afford certain products, or provide the skills to make them.
Perhaps we should work with each other rather than against each other.