Obama gets one right (for the wrong reasons),,,

[The Vorlon]

Well...you do realize that the whole point of a stimulus bill is to cease those actions and reverse them once one thinks they are no longer needed to stimulate the economy?

There are so many problems with the US corporate tax code it is hard to know where to begin.....

The first is that the official rate of 35% is waaaaaaay too high relative the other nations. (Sweden, long known for being under the control of hard core Capitalists, for example, just lowered it's rate, as has Canada)



To offset this higher nominal rate the US tax code is filled with so called "tax breaks" which bring the effective rate for into line with international norms.. the problem is Congress uses these tax breaks to try to shape the economy (ie replace the judgement of the markets with the judgement of Congress)

Naturally, this does not work out very well.

Many companies, (Ie GE which paid ZERO taxes last year, Google which paid 5.5% effective, etc) use perfectly legal means to avoid most taxes.. The US has a market place where a large element of success is how good your tax lawyers are, as opposed to, just as a silly example, the quality and value of the product they deliver to the marketplace....

It also creates a tax avoidance/compliance industry that has no actual contribution to the economy.

Last year the cost of tax compliance to the US economy was estimated at 480 Billion dollars... imagine if the tax code was simple, fair, and devoid of all the gimmics.. this same 480 billion could be used for things such as lower prices, higher profits (hence more tax revenue) R & D.. higher wages, Indeed almost any use would have a higher net benefit to the economy that well, tax avoidance....

it also distorts the economy when the "wisdom" of Congress forces out the wisdom of the market place.....  If you put a big enough subsidy on it, it can be profitable to set up a Banana plantation in Alaska.. that that does not change the fact that Alaska is a silly place to try to grow bananas....  There are a zillion real world examples of silly tax policy begetting silly economic behavior....

Another issue is the repatriation of foreign profits..  Because the nominal US rate is so high, companies use perfectly legal means to actually realize their profits over seas.

For example, Cisco has most of it's patents registered in Switzerland, so whenever Cisco USA sells something they (quite legitimately) pay an intellectual property fee to the owner of the patent (which happens to be Cisco Switzerland) hence profits are magically transferred from the US's 35% rate Switzerland's lower rate...

I could go on and one about the logical flaws of the US systems.. the bottom line is the US needs to burn it down and start again.....

[The Vorlon]

To Carl & Gustaf:

Firstly, corporations do not "pay" taxes, corporations "collect" taxes...

By definition, a corporation must pass on it's expenses to the customers who purchase it's products and services, or it ceases to exists.. passing on tax increases to the customer is thus a matter of existential inevitability...

Canada has some of the highest taxes on Banks in the world, and, as surely as night follows day, the spread between what the banks pay on deposits and what they charge on loans in Canada is also higher than other countries by an amount that almost exactly equals the additional taxes paid by the Banks.....

Secondly, many major corporations are transnational, they have so much trade between so many parts of the world that they can, using fairly basic accounting methods, realize for taxation purposes corporate income in just about any nation they choose to realize it in.. (ie the one with the lower tax rate) - That is why the effective tax rate on corporation is so vital.. if it is too high you don't get more tax revenue, the income just moves to a lower tax jurisdiction...  How much of the "growth" in the Texas and Nevada economies is real, and how much is just companies getting the F#&k out of California to use a inter-US example....?

GE paying zero taxes is just one example of this globally.....

Sweden is an interesting example because, oddly enough because they are so "socialist" many ideas we consider to be "conservative" get a fair and open hearing.

In the United States anybody who tries to "slash medicare" (when in fact they may simply be proposing some sane and rational savings that everybody should support) runs into an ideological brick wall that mitigates against common sense reform, in Sweden by contrast, since all parties have accepted the underlying concepts of their medical insurance system, these ideas tend to get a fair(er) hearing.....

The other interesting thing is that because lower income swedes actually pay a fairly high percentage of their income in taxes, they have a vested interest in prudent, frugal, and cost effective government.

By contrast, in the United states, despite all the moaning and groaning about how the rich too small a percentage of the total taxes, the objective reality is quite different.  The top 1% pay 39% of all income taxes, The top 25% pay 86% of all taxes, the top  50% of the population pays 97% of all federal income tax.. the bottom 50% just 3%.. in fact the bottom 35% of the population receive more in tax credits than they pay in taxes....  (ie the government writes them a check, not the other way around)

I am not saying this is totally "wrong" - the wealthy have more to tax, so they pay more taxes, but the net effect of this is that the vast majority of Americans have no interest in EFFICIENT government, but rather only in MORE government.... while even the poorest Swede when faced with a 30% maginal rate will tend to question the need for more taxes and/or if programs can be delivered more efficiently....

If you pay no taxes, you are (from a purely selfish perspective) in favor of more government, no matter how inefficient of poorly run, because some of that pork just might land in your lap...    
Logically speaking, a program to load up a 747 with $100 bills and randomly scatter them over the countryside would be supported (from a purely self interested perspective) by the majority of Americans...... if the $100 bills are "free" (ie you pay no taxes) and one of them just might happen to land in your lap.... well of course you want more government.....

I point out the Japan at 33.5% has the highest effective corporate rate in the world, and has also been in a deep 20 year long recession.......  Coincidence? - I think not.....

[The Vorlon]

I'd point out that how much of a corporate tax gets passed on to consumers depend on how the market looks. Theoretically, it could be all of it or none of it and in reality often something in between. With banks it tend to be pretty much all of it, for some reason.

The sane and reasonable thing to do with corporate taxes is...... to eliminate them, but tax the "profits" when they leave the company in the form of dividends or capital gains

A company exists for one purpose only...... to provide a rate of return for it's owners....  Every dollar of profit will eventually leave the company (or be invested in the hold of greater profit) because that is the reason corporations exist.. so as to return a rate if return to their owners....

If corporations paid zero taxes, they would have more capital to expand, would grow at a higher rate, and there would be no incentive to move money from one country to another to avoid taxes... no economic activity be undertaken based upon tax considerations.. the sole criteria would be market forces and common sense.

Any profits the company accumulates would be taxed when the money left the company in the form of dividends. (and virtually all the tax paid on these dividends would be paid by the more affluent in the country, as they own more stock... and because they had on average higher incomes) the marginal tax rate on corporate income (one step removed) would thus also be higher...

In the event the corporation decided to retain all it's earnings and not pay dividends,  the price of individual shares would rise as assets accumulated within the company (thus triggering capital gains tax) when the stocks were sold....

......

Of course the notion of elimination corporate taxes is a political absurdity... and thus will never happen......