Strategies for the Fiscal Cliff -- 2

Another issue that needs to be addressed as part of the fiscal cliff discussions is corporate taxation. America has the highest corporate tax rates in the world. It is a major problem in convincing companies to locate their businesses here. We also have one of the most complicated tax structures for corporations in the world. A company like General Electric can earn tens of billions of dollars but not owe any taxes, while a small store that earns $50,000 may owe a substantial portion of that in taxes.

There needs to be an effort made in Congress to get rid of all the garbage that has made its way into our corporate tax code. Special provisions and subsidies for one industry or another have to be ended. At least three quarters of the code could be deleted with no effect except increased fairness for all. Indeed, if the loopholes were closed, the rates could go down dramatically.

Another item that has to be resolved is the taxation of profits earned by US companies overseas. Right now we have a crazy system that allows companies to avoid American taxes on profits if they keep the funds outside the USA. Obama wants to tax all of this money and, thereby, take a third of it from the companies. That will give the government a one time batch of cash, but it will just reduce the amount available for investment in the USA. It also will inevitably lead to companies moving to other countries to avoid the tax.

A better result would be for America either 1) to declare a one time tax holiday so that the funds could be repatriated so long as they are invested here, or 2) to allow repatriation with the company getting a full credit for taxes paid to foreign countries where the funds were generated. Both moves would encourage more money to come back to the USA. That means more investment, more growth, even more tax revenue.