Nations need to collect taxes in order to generate revenue that provides for needed services. Government’s have an obligation to their citizens to do as much and ensure the general welfare of the populace. However, government’s should under no circumstance implement taxes that stagnate economic growth and creates very little revenue. The corporate tax is the perhaps most destructive tax mechanism we have. This is especially true during a period of lackluster economic growth when businesses need all the incentive they can get to grow and expand.
One of the principal reasons we should cut the corporate tax rate is that we are no longer competitive with other industrialized nations. Europe is often criticized as not being conducive to business however Europeans have way more reasonable capital gains rates than the United States does. Daniel J. Mitchell, a Senior Fellow at the Cato Institute writes, “Every developed nation except the United States has reduced corporate rates since the Reagan tax cu such that the average top corporate tax rate in industrialized nations has fallen by nearly 20 percentage points. All European nations—even the bloated welfare states of France and Sweden—have lower corporate rates and generally better corporate tax systems than America.”
One of the principal reasons we should cut the corporate tax rate is that we are no longer competitive with other industrialized nations. Europe is often criticized as not being conducive to business however Europeans have way more reasonable capital gains rates than the United States does. Daniel J. Mitchell, a Senior Fellow at the Cato Institute writes, “Every developed nation except the United States has reduced corporate rates since the Reagan tax cu such that the average top corporate tax rate in industrialized nations has fallen by nearly 20 percentage points. All European nations—even the bloated welfare states of France and Sweden—have lower corporate rates and generally better corporate tax systems than America.”
The countries that have low corporate taxes have experienced rapid economic growth. Governor Mitt Romney elaborates on the relative success of economies on CNN Late Edition: 2008 presidential series with Wolf Blitzer. “We have a roughly 35% corporate income tax rate. It’s almost tied with Japan, which is the highest in the world. Nations like Ireland have learned the game. They’ve put the rate down at half of ours or less and have attracted a lot of jobs. The challenge with a corporate tax cut is that it takes a while to have an impact. It has a significant positive impact over time. It’s probably not likely to have an immediate boost because it takes a while for companies to make investment decisions. But it is a good idea.”
In this response Mitt Romney articulates that while a cut in corporate tax rates would take a while to sink in all and all it is a good long term strategy.
Besides the global disadvantage a nation has by having a high corporate tax rate, corporate taxes are not an effective way to raise revenue. In addition to the national rate of corporate taxes, states can levy on additionally taxes. Oregon is an example of a state that maintained a low level of state corporate taxes but at the same time had no problem raising revenue.
David Brunori a research professor of Public Policy at the George Washington Institute of Public Policy and Joseph J. Cordes Professor of Economics and Associate Director at the School of Public Policy and Public Administration elaborates,
“Table 1 presents data on the percentage of revenue raised by the state corporate income tax in 2001, along with the actual amounts of revenue raised. Even in states with long traditions of progressive taxation, which would seem most likely to rely on the tax, the revenue gained from corporate taxes is minimal. For example, Oregon, historically one of the most progressive states in terms of taxation, has no sales tax and a history of relatively high personal income taxes. The state raised only 5.7 percent of its tax revenue from corporate levies in 2001.”
The reason for the inability of the corporate tax to generate substantial revenue is a result of pure mobility. Businesses are always going to move to places were they are able to maximize profits and in so doing appease their shareholders. Consider recent attempts of legislation trying to punish companies who open up shop Bermuda and other well known tax havens.
John Martin of ABC News writes, “Rep. Richard Neal, D-Mass., plans to introduce a bill that would seek to deter American companies from moving to paper headquarters in Bermuda and elsewhere outside the United States.
I think it's a sophisticated way of avoiding taxes," said Neal, whose legislation would redefine such corporations as American for tax purposes, meaning they would owe their full U.S. taxes anyway.
"Where we are getting ready for a $40 billion proposal to rebuild our national defenses, $13 to $18 billion for homeland security,’ Neal told ABCNEWS, ‘why should we suggest that those who are in the best position to pay [taxes] be allowed to go out of their way to avoid them?’”
Unfortunately politicians like Rep. Richard Neal are missing the pivotal point that business are not charities and are not intended to act as such. Innovation and quality products are creates when companies are allowed to maximize their profits. Businesses do not have a moral obligation to the American public they have a moral obligation to their employees and their growth, we need to give them incentives rather than patronize them
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