The Feehery Theory

Corporate Taxes Are Too Damn High

Posted on March 20, 2015

Our corporate tax rate reminds me of New York political figure Jimmy McMillan.

He famously founded the "Rent is Too Damn High" party and ran for Mayor on the platform that his rent was, well, too damn high.

I feel the same way about America's corporate tax rate.

When politicians tax corporations, they do it for one simple reason:  that’s where they can get a bunch of money.

It’s hard to raise taxes on individuals.  They vote.  It’s especially hard to tax people who live in the middle class, because they vote more, even though that is where the bulk of people live.

It’s not hard to raise taxes on poor people, because they usually aren’t very politically organized, but they are poor because they don’t have much money and taxing them is not only generally counter-productive, it’s also immoral.

Taxing high-income people is actually politically popular.  Polls consistently show that taxing the rich is a winner.  But rich people give the bulk of campaign contributions, to both sides of the aisle, so politicians generally don’t go to that well very often.

Because corporations don’t vote, they are an easy revenue source.

There are plenty of ways to tax corporations.

You can tax the products themselves.  A cigarette tax is a popular way to raise taxes.  Alcohol is another fun one for politicians, especially those politicians who represent dry districts.

You can tax transactions.  You can tax the use of some services and call it a user fee.

You can tax unpopular industries.  Dave Camp, in his tax reform draft, put a tax on Big Banks because he perceived them to be unpopular.

Of course, taxing corporations is counter-productive.

The corporate tax punishes three major groups.   First, it punished consumers, because tax increases are inevitably passed on to those using the products.   A tobacco tax, for example, is especially regressive because it hits lower-income people, who tend to be the biggest group of smokers, the hardest.

Second, it punishes employees.  When the government taxes a company, that company pays its taxes first before it can raise the pay of its employees.  The pie gets smaller thanks to the tax burden.

Third, it punishes shareholders in the company.  For the millions of Americans who own 401k’s or have other retirement portfolios, that means the value of their stocks are depressed by the government taking its cut first.   A company that first has to pay the government before it invests in the future will be far less valuable to investors.

The bank tax is especially counter-productive and I am really surprised that Dave Camp, who was generally a very smart and effective Ways and Means Chairman, decided to include it in his reform plan.

Increasing taxes on big banks means the government gets the first cut of assets that should go to small business loans, mortgages or other lending activity.

If you really want to hobble an economy, make it harder for banks to lend to consumers.  That’s what the Camp Bank tax would have done.

Taxing corporate America is bad policy.

Most of the rest of world has figured this out.   That’s why they are cutting their corporate tax rates.  Ireland taxes corporations at 12.5 percent, far below the 35% that we tax companies in America.   Japan is going to cut its tax rate to 19% in an effort to attract more business to that country.   The average tax rate for most developed countries hovers right around 23 to 25 percent.

America is number one in its corporate tax rate, even though on its face, it makes no economic sense.

Because of our unique political system, based mostly on the political contributions of the very, very wealthy, taxing rich individuals at a much higher rate won’t get a lot of traction.

But we have to do something about our corporate rate, despite that political reality.

American companies are being bought by foreign competitors, moving their operations overseas or shutting down completely, chiefly because our corporate tax rate is so ridiculously high.

Policy makers better get on the ball here.   There’s no sense of urgency in Washington, but there’s plenty of panic in corporate boardrooms across the country.

The corporate tax rate is completely counter-productive, especially at the high level it is at today.   It’s might seem to be smart politics but it is bad policy.  And bad policy is never good politics.   Not in the long run.