August 19, 2008

Having it GOOOOOD (if you're a corporation)

The WaPo decided to take some time out of it's busy schedule sucking up to McCain and his outrageously stupid staff to rain a little dookie on Senator Obama and his plan to stop offshoring American jobs and make sure corporations pay taxes on income earned by overseas divisions. Which is interesting in light of the recent report from the GAO that using loopholes, two-thirds (that's 66% for those of you who don't do fractions so well) of US and foreign corporations operating in the US didn't pay taxes between 1998 and 2005. In fact, 25% didn't pay a dime to the US Treasury on more than $1.1 TRILLION in revenue in 2005 alone.

Some of course think this is great...

I see it completely differently. First of all, corporations don't really pay any income taxes at all. People do. Every time a company decides to sell something to you, the price depends on a lot of things, including how much it costs to make the item, how much profit the company wants to make, and how high the company's tax bill is. You, the consumer, end up paying the corporate income tax with higher prices. And you want more of that?

This is, of course, untrue. Whether a company makes a dollar or $1 billion, it should pay taxes on those profits. Consider it the cost of doing business in a country with a strong consumer base, a tradition of the rule of law (at least so far as commerce is concerned) and a fantastic (though deteriorating) infrastructure. Not to mention, police and fire protection and an education system that spits out workers that are easily trained. You don't get that in many other countries, especially not in those with lower taxes.

Further, from an economic perspective, this is utter nonsense. For one thing, companies have competitors who offer similar products and servicesm not to mention a little something called demand elasticity. When consumers are gouged, they look for a cheaper alternative. Which means that it's hard to drive up prices arbitrarily, say to make more to pay your taxes as the author (a CPA) suggests.

No, these taxes hit shareholders. As a shareholder in a number of companies, I'm fine with that. After all, in other countries, my stake could be arbitrarily taken away. Not so here. In point of fact, I'm happy to pay taxes... it means I made money and am doing my part as an American to maintain the country that has allowed me to prosper. You see, I'm a true conservative who believes fundamentally you pay for what you get. Sure, I don't want government waste but at the same time I don't want private sector waste, either. And the private sector is way more wasteful. I want efficiency and despite what some supposedly conservative ideologues would like to believe, GOVERNMENT IS THE ANSWER IN CERTAIN SITUATIONS.

Finally, let's talk about corporations as people. The fact is, according to a number of SC rulings and interpretatins of the 14th Amendment, corporations ARE people. Why on earth shouldn't they pay taxes like the rest of the people?

Krugman has his take on it and takes on the argument that poor US companies are taxed too high. Actually, as a percentage of GDP, American corporations are taxed at a rate that's middle of the road for first world countries. Only Germany and French corporations pay less as a percentage of GDP, something that will no doubt infuriate those who hate these allegedly socialist countries.

The most striking thing about this debate are the ends to which some will go to dissemble. To wit...

First, while it is true that 60 percent to 70 percent of companies in the study paid no tax in a given year, there was a big qualification. The study focused on an Internal Revenue Service tax database that included millions and millions of companies. The vast majority of firms in the study were tiny mom- and-pop enterprises.

Why did the tiny mom-and-pop enterprises pay no taxes? Because they didn't make any money! The study reported that was the reason about 80 percent of the firms in the sample avoided taxes in a given year. How terrible of them.

If the GAO issued a report that added together data for nine hot dog stands and General Electric Co., and found that 90 percent of companies didn't pay any tax, it would be a harmless and silly thing to do. But if the Democrats then rush to the microphones and insinuate to the general public that 90 percent of companies are tax dodgers, the stakes change.

The author of the above is from the American Enterprise Institute and his focus was on the Democrats rightfully politicizing this. And, in case you were wondering, what he says above is utter bullshit. The focus of the study was on corporations with more than $50 mn in revenues and/or $250mn in assets. How many hot dog vendors do you think fall into that class? How many mom and pop Ebayers have more than $250mn in assets?

Of course, the author didn't bother to leave his arguments there but instead decided to reiterate the tired assertion that US corporate tax rates are the highest in the western world. Which is true if you're looking at published tax rates. What he should be looking at is the actual tax burden which is composed of the actual taxes paid by companies in the US. That number is among the lowest in the world which rather neatly rains dookie all over the argument that our poor corporations are overburdened with taxes. Want more proof? See the Krugman link again.

Leona Helmsley was often quoted as saying that only the poor pay taxes. They can't, after all, afford accountants to find exotic loopholes in the tax code and they certainly can't afford attorneys to defend them in the event of an audit.

Posted by mcblogger at August 19, 2008 02:03 PM

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