by William Teach | November 13, 2017 7:07 am
The NY Times Editorial Board actually provides a rational, well researched, well thought out plan, and offers some facts, figures, and likely outcome on corporate taxes. Is it workable, though? What it does do is get money grabby
The Right Way to Cut Corporate Taxes
Republicans are right about the corporate tax system being broken, but wrong about why it’s failing and how to fix it.
The EB says that lowering it from 35% to 20% is the wrong way to go about this. They note that, on average, American companies actually pay an average effective federal-state rate of 18.1 percent, per a 2016 report, which they say is lower than many other 1st World nations (which is a little disingenuous, since this is a combination of taxes, while Trump is talking about the federal rate being the highest in the developed world). They note all the tax schemes “cooked up” by all sorts of different people, embedded in law, which means that the corporate share of tax revenue is just 1.6% of GDP, when it was 4% in 1967. Still a bit shoddy of a stat, since things have changed quite a bit since 1967. But, this isn’t really the point of the editorial.
They also try to show that trickle down from corporate tax cuts didn’t work in either the 1980’s corporate tax cut nor from Britain’s same in recent years. Here’s what the Times offers
So what would true reform look like? First, it would not blow a $1.7 trillion hole in the budget over the next decade, which is what the House plan would do, according to the Congressional Budget Office. Second, it would make the system fairer and more efficient. If Republicans worked with Democrats, they could reach a compromise to lower the top corporate tax rate to between 25 percent and 28 percent, eliminate loopholes and reduce the incentive businesses have to take on debt, rather than to use equity to expand. Under current law, interest is deductible for tax purposes while dividends are not.
Suddenly, the Democrats at the NY Times are worried about debt. They never seem to wonder if perhaps Los Federales should spend less, and, get this, spend wisely. Don’t spend $500 on hammers (which tend to get lost quite a bit) when you can get a really good one for less than a $100 on a Craftsman or Stanley with lifetime guarantees. Don’t spend money on fish on treadmill studies. Don’t pay $2 million for a road that should cost $100,000 for real. And so forth. Regardless, would this work? The point of the GOP plan is to attempt to keep companies in the United States, so that the money stays here. And the jobs stay here.
Real reform would also include a minimum tax on profits earned abroad by American corporations in the year those profits are earned, minus a credit for taxes paid to other countries. Businesses can now defer taxes on such profits indefinitely, as long as they do not bring the money back to the United States. Big companies like Apple, General Electric and Microsoft have kept an astonishing $2.6 trillion in profits offshore, hoping Congress will lower the tax rate or give them a tax holiday to repatriate the money at ultralow rates. The House bill would let companies bring those profits home at 7 percent (for money invested in hard-to-sell assets) or 14 percent (for cash). A plausible compromise would let businesses repatriate all past profits accumulated overseas at a somewhat discounted rate, say 15 percent to 16 percent. All of this money could be used to rebuild America’s dilapidated infrastructure.
Good? Bad? Would companies repatriate for 15% or 16%? Or say “nope”? Of course, the Times is happy to put yet another tax on companies. I wonder if they keep their own profits earned overseas overseas. And here’s another
While the outlined changes would solve an immediate problem, Congress also needs to consider longer-term obstacles to tax avoidance by multinational companies. One smart idea that deserves more study is a proposal by economists like Kimberly Clausing, a professor at Reed College. She argues that the United States and other countries ought to tax profits that corporations earn from sales inside their borders, similar to the way American states now tax corporate profits. Each country would control its tax rates, deductions and credits. But companies would lose the ability to game the system by booking profits through subsidiaries registered in zero- or low-tax countries like Bermuda and Luxembourg, where they might be making few sales.
The NYTEB is all about increasing taxes.
Eventually, Congress will need to do more than just patch the tax system. Even without the Republican tax cut plans, the Congressional Budget Office expects the federal deficit to grow to 5.2 percent of gross domestic product in 2027, up from 3.2 percent in 2016, thanks in part to the Bush tax cuts and the Iraq war. Lawmakers will need to consider new sources of revenue, including a value-added tax, a carbon tax and a financial transactions tax. Each would broaden the tax base and achieve important policy goals, like encouraging savings, reducing greenhouse gas emissions and reducing risks in the financial system.
Apparently, Obama’s proliferation Stimulus plans and massive spending, which almost doubled the US deficit in 8 years, isn’t even considered as a big deal by the EB. But, of course, they want more and more taxes, regardless of what it does to consumers and economic activity negatively.
The Republican proposals do none of these things. They do, however, reward the wealthy. Among the worst offenders is the proposed corporate tax cut, which is larger than needed and does nothing to make the system more efficient. The victims here are the economy as a whole and the workers and ordinary folk to whom Mr. Trump promised relief.
Right. Because no one would be victims of a far left tax increase on almost everything. We’ll all be equally poor. The question with the GOP plan is “will it keep corporate profits here, and will it stimulate companies to stay in the U.S. and hire employees”?
The GOP should take a page from the NYTEB and cut any loopholes that effect newspapers. Let’s see what the Times thinks then.
Crossed at Pirate’s Cove. Follow me on Twitter @WilliamTeach.
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