As I write this, the United States taxes corporate income at the rate of 35%, the highest rate in the developed world. Indeed, the average rate in the rest of the industrialized world is 26% according to the OECD. This high tax rate discourages investment in America and actually promotes the export of investments by American companies to other countries. This is bad, but even worse is the confusing maze of exceptions and loopholes that exist in our tax code. Many businesses don't even pay corporate taxes; they pay their taxes on the personal income tax returns of their shareholders. We end up with crazy results where a company like General Electric can earn billions and billions of dollars but pay no tax while a small company that earns $300,000 has to pay more than a third of its earnings in taxes. Lobbyists get special provisions put into the tax code for their clients, and the rest of the country has to carry the burden.
The corporate tax code has to be rewritten. The inequities of the system must be removed. The aspects of the code which discourage economic growth here in the USA must be discarded. The special loopholes obtained by lobbyists must be erased. The rate of taxation must be cut.
Let's start with a few simple principles:
1. All corporations should pay corporate taxes. The different rates paid by companies that pay through their shareholders' returns must end. There should be one rate schedule and it should be the same for every corporation in the country.
2. Taxation should be designed to raise revenue and nothing else. The special rules which promote one cause or another must be expunged from the code. If Congress wants to promote the preservation of historic buildings, it should do so directly rather than through some wrinkle in the tax system. America needs a simple and straightforward tax code.
3. There should not be any tax benefit given to American companies to send their plants offshore. All corporate income ought be taxes. We can give companies credits for taxes paid to other countries for activities in those countries, but nothing else.
4. All the special rules of the past should be erased. Every corporation should be treated equally. All profits should be taxed.
5. If we do all of the above, then the tax rate should be cut to 12%. Believe it or not, this rate would raise a bit more revenue than the current corporate income tax.
Just imagine all the benefits of these changes.
First, the enormous expenditures by corporations each year for accounting and legal help to deal with the tax code will be slashed. This will add billions of dollars to the profits of American companies and it will give them more funds to invest.
Second, the simple and low rate tax code will act as a magnet for investments by companies from other countries into the USA. Instead of our exporting jobs, we could begin importing them. This effect will also remove the incentive for American companies to open plants overseas to get favorable tax treatments.
Third, federal tax revenues will go up. Right now, the corporate income tax provides less than 10% of federal revenues. Even so, an increase of just 10% in the corporate tax revenues will provide at least an additional quarter of a trillion dollars over the next decade.
Fourth, economic growth will accelerate in the USA. All those new investments encouraged by the new tax code will bring jobs and production to America. It will help us break out of the slow growth mode in which we have been suffering for the last five years.
Fifth, a new tax code would be a whole lot fairer than the current mess with which we are suffering. All those lobbyists who used their influence to get special favors for their clients will watch those favors dissolve before their eyes. Everyone will be treated equally.
Right now, there is almost no one in Washington who even considers discussing this issue. That needs to change. This is a process which will expedite economic growth, promote fairness and increase government revenues all at the same time. It is the proverbial win-win situation.
Somebody in Washington has to have the foresight and nerve to start the discussion.
The corporate tax code has to be rewritten. The inequities of the system must be removed. The aspects of the code which discourage economic growth here in the USA must be discarded. The special loopholes obtained by lobbyists must be erased. The rate of taxation must be cut.
Let's start with a few simple principles:
1. All corporations should pay corporate taxes. The different rates paid by companies that pay through their shareholders' returns must end. There should be one rate schedule and it should be the same for every corporation in the country.
2. Taxation should be designed to raise revenue and nothing else. The special rules which promote one cause or another must be expunged from the code. If Congress wants to promote the preservation of historic buildings, it should do so directly rather than through some wrinkle in the tax system. America needs a simple and straightforward tax code.
3. There should not be any tax benefit given to American companies to send their plants offshore. All corporate income ought be taxes. We can give companies credits for taxes paid to other countries for activities in those countries, but nothing else.
4. All the special rules of the past should be erased. Every corporation should be treated equally. All profits should be taxed.
5. If we do all of the above, then the tax rate should be cut to 12%. Believe it or not, this rate would raise a bit more revenue than the current corporate income tax.
Just imagine all the benefits of these changes.
First, the enormous expenditures by corporations each year for accounting and legal help to deal with the tax code will be slashed. This will add billions of dollars to the profits of American companies and it will give them more funds to invest.
Second, the simple and low rate tax code will act as a magnet for investments by companies from other countries into the USA. Instead of our exporting jobs, we could begin importing them. This effect will also remove the incentive for American companies to open plants overseas to get favorable tax treatments.
Third, federal tax revenues will go up. Right now, the corporate income tax provides less than 10% of federal revenues. Even so, an increase of just 10% in the corporate tax revenues will provide at least an additional quarter of a trillion dollars over the next decade.
Fourth, economic growth will accelerate in the USA. All those new investments encouraged by the new tax code will bring jobs and production to America. It will help us break out of the slow growth mode in which we have been suffering for the last five years.
Fifth, a new tax code would be a whole lot fairer than the current mess with which we are suffering. All those lobbyists who used their influence to get special favors for their clients will watch those favors dissolve before their eyes. Everyone will be treated equally.
Right now, there is almost no one in Washington who even considers discussing this issue. That needs to change. This is a process which will expedite economic growth, promote fairness and increase government revenues all at the same time. It is the proverbial win-win situation.
Somebody in Washington has to have the foresight and nerve to start the discussion.
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