A Philosopher's Blog

Corporate Taxes, Again

Posted in Business, Law, Philosophy, Politics by Michael LaBossiere on February 29, 2012
Tax

Tax (Photo credit: 401K)

One common theme pushed by folks on the right is that corporations are taxed too much. When making a case for this, people point to the fact (and it is a fact) that the corporate tax rate is 35%.  From a sensible view point, that does seem rather high. After all, having the state skim 35% off the top would make it much harder for business to hire people, re-invest and do all those other things that are rather important to keeping the balloon of capitalism expanding. As such, the call to cut corporate taxes often has significant appeal. However, there is on rather obvious problem with the argument: some corporations pay no taxes and the average is around 12%.

This lower actual rate is due to the fact that corporations are able to take advantage of various tax laws (often created at their behest or via heavily lobbied deals). This laws allow corporations to use loop holes and other means to lower their taxes significantly. Lest I be accused of ignoring the obvious, the tax laws also allow individuals to also lower their taxes through various deductions and exemptions.

One reason why the facts are important in this situation is that much of the rhetoric and (limited) arguments for lowering  corporates taxes are not based on what corporations actually pay. To use the obvious example, when someone rails against the high corporate tax rate, they do not say that the average tax rate for American corporations is 12.1% and they most certainly do not mention that some companies (most infamously GE) are able to avoid having any tax obligations. After all, a 12% tax on what are often massive profits would not strike most people (especially those of us who work for a living) as particularly onerous. In fact, given the significant benefits enjoyed by corporations (corporate subsidies, use of infrastructure, military and diplomatic operations on their behalf and so on), this seems like an excellent deal.

Another reason why the facts are important is that they are rather important to having a rational discussion of what corporate tax rates should be. As noted above, the stock line is that corporations are being harshly taxed and these taxes need to be lowered. When the tax percentage is presented as 35%, that does seem rather harsh and lowering it seems reasonable. However, this claim has the obvious problem of not being what corporations actually pay. The average is, as noted above, 12.1% and this seems like a rather low figure already relative to corporate earnings. Also, if someone where to argue that the tax rate for corporations should be 15% (the cap for capital gains taxes), then the obvious response is that corporations already pay a smaller percentage, thus eliminating the need for such a reduction.

But perhaps the people who point to the 35% and call for lower taxes do not mean that they think that 35% is too high. Perhaps they are well aware of the real percentage but merely use 35% as a rhetorical trick because they think that the percentage that corporations pay on profits should be even lower than 12.1%. Of course, that would seem to be rather low, given what wage earners pay in terms of a percentage of their income. After all, corporations already tend to pay a lower % than many folks who work for a living. This might, of course, mean that the taxes on the working people are too high as well.

But, if they are, then we must explain the deficit entirely in terms of needless overspending. After all, if the state is taking in too much money, then the most plausible explanation for a deficit would be that we are spending too much on needless programs. This could very well be the case and should be duly considered. Of course, the key word here is “needless”-if we actually do need to spend tax dollars, then the tax rates should be devised so that they enable us to meet our legitimate expenses. The challenge, which is a very serious one, is sorting out the needless spending from what we should be spending. Naturally, everyone tends to hold that what the think benefits them is essential and what they think does not benefit them is needless. Unfortunately, there seems to be little tendency to address this matter in a rational way and the “discussion” seems to be based mainly on rhetoric, partisan ideology and unrestrained emotion.

Enhanced by Zemanta
About these ads

21 Responses

Subscribe to comments with RSS.

  1. anon said, on March 1, 2012 at 10:28 am

    “But perhaps the people who point to the 35% and call for lower taxes do not mean that they think that 35% is too high. Perhaps they are well aware of the real percentage but merely use 35% as a rhetorical trick because they think that the percentage that corporations pay on profits should be even lower than 12.1%.”
    I believe that most people (not necessarly the politians though) who use that number really DO believe that corporations actually pay that amount. Ignorance is strong in this country.

    “Of course, that would seem to be rather low, given what wage earners pay in terms of a percentage of their income. After all, corporations already tend to pay a lower % than many folks who work for a living. This might, of course, mean that the taxes on the working people are too high as well.”
    Well Mike, since you are a “leftest” you are unable to comprehend that only ~*corporations*~ produce anything and people are parasites. Corporations NEED all of their money so they can “hire people”. Everybody knows if corporations had more money they would OBVIOUSLY spend it to hire new people in well paying positions, even if they don’t need those people, instead of hoarding it or increasing the pay of the executivites. People NEED corporations to exist. If there wern’t any corporations than everybody would die.

    Its sort of funny how corporate taxes are a “flat tax” but yet people who want flat taxes complain about it so much. It seems “obvious” that the best solution would be to minimize deductions and to create a progressive corporate tax like there is for individuals.

    “After all, if the state is taking in too much money”
    The state is taking in too much money if they have a budget in the black, quit stealing my precious tax dollars you communist, marxist, leftist, big government nanny state. (Seriously though, I’ve met people who believe that governments shouldn’t have any surplus $ and if they do they should have to immediatly distribute it to their citizens).

  2. T. J. Babson said, on March 1, 2012 at 2:36 pm

    I can’t help it. This is a real paper by real philosophers in the Journal of Medical Ethics arguing that it should be OK to kill newborn babies.

    http://jme.bmj.com/content/early/2012/02/22/medethics-2011-100411.full.pdf+html

    ABSTRACT
    Abortion is largely accepted even for reasons that do not
    have anything to do with the fetus’ health. By showing
    that (1) both fetuses and newborns do not have the
    same moral status as actual persons, (2) the fact that
    both are potential persons is morally irrelevant and (3)
    adoption is not always in the best interest of actual
    people, the authors argue that what we call ‘after-birth
    abortion’ (killing a newborn) should be permissible in all
    the cases where abortion is, including cases where the
    newborn is not disabled.

    • T. J. Babson said, on March 1, 2012 at 2:39 pm

      “after-birth abortion”

      There is a euphemism for you, Mike.

      • Michael LaBossiere said, on March 7, 2012 at 5:39 pm

        “After birth abortion” does seem to be a euphemism for infanticide. My view is that we should call things what they are (with exceptions for being polite or being in the presence of the very young).

    • anon said, on March 1, 2012 at 4:24 pm

      Did you even read the paper? I guess not.

      WTF does this do with corportate taxes, nothing? Not surprised.

    • dhammett said, on March 1, 2012 at 4:53 pm

      And there you go again:

      “Maude died after being knocked off a grandstand by a shirt cannon at the Springfield Speedway, because Homer had made the Fan-demonium girls shoot directly at him all at once. When this happened, Homer ducked down to pick up a bobby pin, causing Maude to get hit.” Simpsons Wiki

      So make that “sweet, beery, shiny, or pointy.”

      Just for you Mike: “Woooo…honey beer in an inverted silver pikelhaube. . .”

    • Michael LaBossiere said, on March 7, 2012 at 3:23 pm

      Philosophers have argued for and against almost everything over the centuries.

    • Michael LaBossiere said, on March 7, 2012 at 5:41 pm

      How does this article impact the issue of corporate taxes?

  3. Jim said, on March 6, 2012 at 9:14 am

    So, can I add something to this conversation?

    I am a practicing CPA, with 35 years of experience working with tax laws. The one comment that I want to share now relates to “loop-hole”, and trying to define that term.

    When I read accounts that major corporations report earnings to their shareholders, but pay no tax on its annual income tax return, that must be the result of the use of some loop-hole.

    To me a loop-hole is the ability to use some tax law in a way that wasn’t envisioned at the time the law was enacted. If you “google” “black liquor” I think you will find an interesting application of an energy tax incentive that SOME may argue is a loop-hole that some companies employed. I don’t have a point of view on whether it is or isn’t a loop-hole, but let’s assume that most would agree that it is a loop-hole because it wasn’t even discussed when the related energy tax benefit was enacted.

    OK, now let’s move to depreciation. Remember in 2008, when the entire western world thought that we were headed for a deep recession, if not a depression, due to the financial crisis associated with sub-prime house loans? Also remember that the FED instituted unprecedented easy monetary policy so as to avoid a depression. Congress also felt that it needed to do something, and it passed a tax law that allowed businesses to take an immediate tax expense for the cost of purchasing new equipment. The thinking went that if we can keep our factories busy manufacturing new computers, autos, trucks, tools, machines, desks, filing cabinets, etc., then fewer people would be laid-off than would be without this one time buying binge of businesses. What congress was trying to do was to keep business from delaying the decision to purchase business assets, and in fact they were trying to get businesses to accelerate their purchasing.

    So what? you may say. Well, this law, intentionally enacted to spur economic growth was know to result in increased tax deductions by every company that purchased business assets and elected to write off the assets in one year instead of the normal depreciation period. This law, enacted to encourage businesses to spend money resulted in companies lowering their tax bill from what they would have paid had the law not been enacted.

    So, is it a loop-hole when a large multinational corporation spends some of its cash on business assets that was the very behavior hoped for by congress when it passed this law? It doesn’t fit my definition of loop-hole. I won’t go overboard and declare the actions of such corporations as patriotic but, these corporations did act in a way that was expected, and that behavior was urged in the hope that factories would be busier than they would be without such a law.

    By the way, these corporations will end up paying more tax in the years subsequent to the purchase of the above mentioned assets, because they won’t have the ability to claim any depreciation on that equipment, as they fully wrote off the equipment in the year of purchase.

    I would also like to talk about global tax rates. Why should the CEO of a multinational opt to locate a business in a high tax country, and therefore pay a high tax when a low tax alternative exists? Assume a multinational invents a new product, and it has customers for this product in Spain and in Ireland. The spanish tax rate is high, compared to Ireland. All else being equal, why should a company invest in a high cost country? As a shareholder of this corporation, wouldn’t we expect management to make investments in places that provide us with the largest earnings per share? So why not build the plant in Ireland and ship to customers there and to Spain. Ireland’s tax regime would apply, not Spain’s.

    Does the answer change when we compare the US tax rates to Ireland instead?

    So, I guess the question is, is the world in an arm’s race to see who can lower businesses taxes the most? There are several examples of countries granting income tax holidays to corportions in the hope that businesses will locate in that jurisdiction and hire people locally, who pay all sorts of taxes. Will business taxes ever be eliminated under the theory that businesses pass on all costs to their customers, so really it is people who pay taxes, not corporations? Not a suggestion, just a thought.

    Thanks for taking the time to read this.

    • wtp said, on March 6, 2012 at 6:51 pm

      Jim, you’re thinking too much for this blog. Corporations = bad. They are all greedy bastards who connive and scheme via their lobbiests to drain as much blood from us turnips as they possibly can. Nothing can stop them. All is vanity. Except for Apple…but now that Steve Jobs is dead, maybe Google. Their motto is “don’t be evil”. So they’re not. See? You got to get your mind right. You have to see the world as it “is”, then pick and choose the facts that support that world view, ignoring those facts that don’t fit. Then you can graduate from silly bean-counter job of CPA to the high-minded, all-seeing position of capital-P-Philosopher. It’s all in the pursuit of knowledge, you understand.

      • Jim said, on March 6, 2012 at 11:38 pm

        Got it”

      • Michael LaBossiere said, on March 7, 2012 at 5:37 pm

        I think the same way about corporations as I do about actual people: they are good or bad based on what they are, what they do and why they do it. Some corporations act in acceptable, even laudable, ways. Others do not.

        • wtp said, on March 7, 2012 at 9:37 pm

          Would you have described Google as “laudable” 5 years ago? Would you still say it today? Same with Apple? Please some examples of corporations that make serious products that you have found “laudable” over a significant time period. No Ben & Jerry’s or boutique corporations. Can you name a dozen?

          • Michael LaBossiere said, on March 8, 2012 at 2:14 pm

            I’ll admit that there are no perfect corporations, but here are some good ones. One of my running buddies (a staunch Republican) owns a real estate LLC. She is honest and runs an ethical business. The contractor who installed new siding on my house, Randy, who owns Aztec LLC did very good work at a reasonable price. The company that installed my new flooring also did a good job at a good price as did the company that replaced my blown up HVAC. As such, I’ve had plenty of positive experiences with LLCs.

            As far as the big dogs go, I have less direct experience. Apple apparently gets its iPad built by what seems to be almost slave labor, Google seems a bit evil, and so on. But, the folks who provide us with cars, computers and so on do us some good.

            • wtp said, on March 8, 2012 at 5:29 pm

              Slippery as an eel. You know the context in which Jim and I were using the term “corporations”. And small-time operators are incorporated for the very reasons you mock in your other posts about corporate “personhood”. Not that there’s anything wrong with small, in fact as you state many are better than big corporations, many more are much worse due to no brand name to protect.

              This is just more of the semantic word-play/sophistry that you constantly fall back on. Yesterday you made the most childish of arguments with Magus when he pointed out your “overwrought belief in the power of words”. http://aphilosopher.wordpress.com/2012/02/27/delusions-of-self-reliance/#comment-17824 Pitiful. A 6th grader would be ashamed to make such an argument. And the state of Florida pays you $50K + /yr to teach this sort of unaccountable thinking to college students . You’re not teaching people how to think, you’re teaching people SOPHISTRY. And not very good sophistry at that.

            • Michael LaBossiere said, on March 9, 2012 at 12:11 pm

              Hardly. You asked me about corporations and I responded. LLCs are corporations, obviously.

              You’ll note the smiley face denoting that I was joking in that last sentence. As such, I cannot feel shame for making an argument when I did not, in fact, present one. I had hoped the icon would make the lack of seriousness clear, but perhaps I need a better system of denoting when I am not actually arguing but joking. Perhaps something like: “The following is a joke and not to be taken as an argument:XXX. Joke ended.”

            • dhammett said, on March 9, 2012 at 12:28 am

              wtp: You posted the above statement on March 8. In what world is February 29 yesterday (as in “Yesterday you made. . . .”? Just asking.

            • wtp said, on March 10, 2012 at 2:43 pm

              How about :

              #CLOWN_NOSE_ON
              #CLOWN_NOSE_OFF

              This is typical of your argument style. Play semantic games, etc. and when all else fails, fall back to the “I was only joking” means of avoiding a point. More childishness. Like I said, you’re not even a good sophist. You are nothing more than a forth-rate con-man masquerading as a philosopher. And the state of Florida is a sucker to pay you a dime, let alone 50K. You should thank God, Allah, Buddha, and the spirits in the trees of the forest for finding such a sucker. But seeing as you are not alone, and academia (especially at the mid-to-low end) is rife with folks such as yourself, you have no idea how good you have it. You see your position as “normal”. It constantly amuses me the similarity I see in arguments with people such as yourself and those of the religious and political extremes. Especially the religious right. Give them a fact that contradicts their world-view and they can find all kinds of justification in and out of the Bible that “proves” them right. But instead of relying on some “i was only joking” excuse, they blame the Devil or such. There’s always an out. What both of your types have in common is an inability to simultaneously, with equal vigor, pursue conflicting lines of thought.

            • Michael LaBossiere said, on March 10, 2012 at 5:07 pm

              As you’ll note, when I am joking I typically just present one or two lines and usually put in a “:)” for clarity. . When I argue, I go on at length. As you’ll note, the only remarks I claim to be jokes are, in fact, minor asides-like the single comment about the use of words. It would be quite a hasty generalization to go from a few sentences to my entire collection of posts.

              Everyone tends to see their position as “normal”-as opposed to abnormal. They might, of course, regard it as uncommon.

              It is unclear what sort of con I am running. After all, I present all my arguments and positions openly and consistently. If I have a scam going, it must be an unusual one. Also, I am always open to counterarguments. As you’ll note, I have never deleted any of your comments. If I was running a scam or simply dismissed opposition out of hand I’d be pruning the comments and banning people, like some sites do. Also, you’ll note that I do give consideration to opposing views. Naturally, I think the view I take is better supported-after all, it would be odd to side with a view one regards as inferior.

              As far as my job evaluation, you might wish to actually observe my classes and interaction with students before accusing me of apparently robbing the state of Florida.

            • wtp said, on March 10, 2012 at 8:56 pm

              Mike, I just can’t accept it. Yes, you refrain from deleting posts like mine that vehemently argue against your point of view. But as philosophical ground rules go, is that saying much? Yes, in today’s environment where people can’t stand to even hear another point of view and get so upset with other views that they would go to such measures (or worse). Yes, you are not TPM, but it is a sad statement of where things are in western society. You’re a philosopher who will not expunge an idea from a discussion. But really, so what?

              Do I try to stay on the argument? Do I attack you personally? I try to focus on the topic, but you dodge and weave and sidestep and play semantics. All tactics of a sophist.

              As for your job performance in the class room, how could I possibly know? I addressed what you profess to teach, yet that’s a big new can of worms that you will just play more silly semantic games with. But to that point, what I’ve always found rather odd in the time I’ve spent arguing with you on this site…where ARE your students? You’ve indicated you teach somewhere in the neighborhood of 150-200 students a year. And yet not one ever seems to pop up here except the same half-dozen of us. Where’s the curiosity? Are they afraid to rock the boat? Just seems kinda odd.

              So you don’t delete my posts. And I don’t call you an f-wad (in which case you would be justified in deleting my post). Is that really saying much? You’re a better man than Jeremy. So are most men. Really.

            • Michael LaBossiere said, on March 12, 2012 at 3:26 pm

              Actually, these days not deleting or banning people is something of a mark of tolerance. That is, as you note, a rather low bar.

              Well, you do attack me personally. After asking this, you essentially accused me of being a sophist. That seems rather like a personal attack.

              Ah, but you make it clear that you think I’m suckering the state into paying me way too much. The job I do in the classroom is what I am partially paid to do (the rest is administrative duties such as being an adviser, being the unit facilitator, serving on the GEAC and the IT committees, and so on). To say that I engaged in such a scam requires more than just saying that you infer my scamtasticness from what I write here.

              My students have said that they do read the posts (of course, that could be a play for points). My readership is considerably higher than the comment rate, so it is hardly a shock that most people do not post anything. But it is interesting that, as you note, there is little interest from students (mine and most others). At the TPM blog it also seems, at least by remarks made by folks, that the majority of people commenting are not undergrads. I suspect they have cooler things to do with their lives. :)


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 2,066 other followers

%d bloggers like this: