Are Corporate Tax Rates Really the Problem?

Of course, I’d like to pay less in taxes, just like everyone else outside of a few very vocal billionaires.  (Have any of them ever made voluntary contributions to the government?  Hmm.)  I also know I’m fortunate to live in a country that has great infrastructure, a reasonably well-functioning legal system, and other conditions that allow and encourage wealth creation better than any society in history.  Those conditions cost money.  Taxes finance the conditions that allow individuals and businesses to prosper.  Every reasonable estimate of the tax bill’s consequences conclude US government debt will increase by over $1 trillion dollars.  What’s a trillion when you already owe over $20 trillion?  That’s the attitude our leaders appear to be taking.

The current tax bill that Congress is expected to pass this week greatly reduces the corporate tax rate.  Proponents claim a lower corporate tax rate will make US businesses more competitive with the rest of the world.  In theory, the lower corporate tax rate should lead to capital returning to the US from overseas.  Opponents deride the plan as a tax cut for the wealthy.  Of course it’s a tax cut for the wealthy; the wealthy pay the majority of income taxes in the US.  But that’s topic for another day.

I think supporters of the corporate tax cuts are focusing on the wrong problems.  Proponents of corporate tax cuts insist high tax rates are reducing investment in the US.  In other words, they claim the cost of capital is high due to high taxes.  I’ve anecdotally surveyed business people, from small businesses to large public companies, and not one has said access to capital is a problem.  The problems they cite most often are: regulatory burdens, access to talented workers, and a lack of demand from customers.

If this bill is passed, it will be an early Christmas present to large corporations.  I doubt they’ll share their gift in ways Congress promises.

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