|art by Christopher Sergio|
Jobs don’t grow out of thin air, especially well-paying ones. They require, among other things, companies that are willing to operate where you live. Just ask the Seattle-based District 751 of the machinists’ union, which was worried that Boeing will build its new 777X airliner someplace far away where it is cheaper to produce. Last month the union offered contract concessions, as its president explained, to ensure “the long-term success” of Boeing in
. And on Friday, Boeing machinists approved a contract with concessions to keep assembly of the plane in the area. Washington State
In recent decades, American workers have suffered one body blow after another: the decline in manufacturing, foreign competition, outsourcing, the Great Recession and smart machines that replace people everywhere you look. Amazon and Google are in a horse race to see how many humans they can put out of work with self-guided delivery drones and driverless cars. You wonder who will be left with incomes to buy what these robots deliver.
What can workers do to mitigate their plight? One useful step would be to lobby to eliminate the corporate income tax.
That might sound like a giveaway to the rich. It’s not. The rich, including Boeing’s stockholders, can take their companies and run — and not just from
Washington Stateto, say, North Carolina. To avoid our federal corporate tax, they can, and often do, move their operations and jobs abroad. Apple’s tax return says it all: The company, according to one calculation, paid only 8.2 percent of its worldwide profits in United States corporate income taxes, thanks to piling up most of its profits and locating far too many of its operations overseas.
I, like many economists, suspect that our corporate income tax is economically self-defeating — hurting workers, not capitalists, and collecting precious little revenue to boot.
United Statesmay well have the highest effective marginal corporate income tax rate of any developed country. Jack Mintz, public finance economist and director of the Schoolof Public Policyat the , puts the rate close to 35 percent, which is also the statutory rate. Other economists, using different techniques, calculate the marginal rate to be as low as 23 percent. But both figures are miles above zero. Universityof Calgary
They are also miles above our 13 percent average corporate income tax rate — the ratio of corporate taxes to total corporate profits. The fact that the marginal tax rate, whether 23 percent, 35 percent or somewhere in between, is so much larger than the average rate suggests that a sizable share of corporate profits and production is ending up overseas and untaxed.
Making, rather than just stating, this case requires constructing a large-scale computer simulation model of the
United Stateseconomy as it interacts over time with other nations’ economies, and then seeing how the model reacts when you change the American corporate income tax. I’ve developed such a model with three colleagues through the Tax Analysis Center, a nonpartisan research group. Our findings make a very strong, worker-based case for corporate tax reform.
In the model, eliminating theJohn Steele Morgan at Commentary Magazine fills in the rest of the story, even if our other tax laws did not change:
United States’ corporate income tax produces rapid and dramatic increases in American investment, output and real wages, making the tax cut self-financing to a significant extent. Somewhat smaller gains arise from revenue-neutral corporate tax base broadening, specifically cutting the corporate tax rate to 9 percent and eliminating all corporate tax loopholes. Both policies generate welfare gains for all generations in the United States, but particularly for young and future workers. Moreover, all Americans can benefit, though by less, if foreign countries also cut their corporate tax rates.
Abolishing the corporate income tax would bring howls of protest from the left that corporations aren’t paying “their fair share.” But corporations, of course, don’t pay the corporate income tax. Instead it’s paid by some combination of workers, with lower wages; customers, with higher prices; and shareholders, with lower profits. The particular combination depends on the economic circumstances of each industry. And abolishing the corporate income tax (which was, anyway, only intended to be a stopgap until a personal income tax amendment could be ratified) would have many extremely positive effects for the American economy.
- It would then be fair to tax dividends as ordinary income, which they are not now. That means that rich stockholders would pay 39.6 percent on that income, not 20 percent as now.
- Corporations would repatriate trillions in profits now held overseas to avoid U.S. taxes and invest much of that money here.
- Foreign corporations would flock to the United States instead of U.S. corporations moving their headquarters overseas.
- Corporations would concentrate on pre-tax income, which is a function of economic success in the marketplace, not after-tax income, which is a function of lobbying success in Washington.
- Tens of thousands of tax lawyers, accountants, lobbyists, and IRS agents would be out of work and would have to find something economically productive to do.
- Corporations would have much less interest in providing perks to their executives that the corporation can write off instead of taxable salaries.
Unfortuntely, all of these positive results will never be seen clearly by low-information Democrats, especially the politicians who will see corporate lobbying money dry up. But the opportunity to be rid of crony capitalism, once and for all, is a powerful incentive for those of us interested in having this country return to its economic greatness.
- There would be a race among the 50 states to lower or abolish their own corporate tax rates.