4/15/2008
U.S. Must Slash Corporate Tax Rates Now
On the political scene, oil companies are the punching bag du jour. People are fed up with $3.50/gallon gasoline and $110/barrel oil, so of course, it must be the fault of the oil companies, who are making money hand over fist at our expense.
Give me a break. Seems to me there are three factors contributing to high oil, and by extension, high gasoline prices.
1. A global economic boom which has caused rapidly rising demand for oil
2. An unstable political environment which leads to fear of supply disruption which leads to higher prices
3. An extremely weak U.S. dollar
What control do oil companies have over any of this? American consumers drive demand, and I still see plenty of Hummers and gas guzzling SUV’s on the road. When I was in Los Angeles in January, all eight lanes of The 5 were packed, except the carpool lane, which was practically empty. For our unstable political environment we can thank terrorists and the likes of Hugo Chavez. And the weak dollar? Thank our government’s fiscal and monetary policies for that one.
Even if you disagree with me, I hope you won’t argue with this. Corporations are supposed to make money. When they don’t, it is we, not the corporate fat cats, who suffer. That is why we must reduce corporate tax rates in a big way, right away.
For you statistics junkies, check out this (.pdf) study of 2008 global taxation trends from PriceWaterhouseCoopers. What comes across loud and clear is –
- The entire world is lowering tax rates while the U.S. talks about raising them
- The U.S. already ranks 102 in TTR (Total Tax Rate), meaning, there are 101 countries around the globe where the tax bite is lower
If you think higher corporarte tax rates mean more tax revenue, think again. The higher the tax rate, the more incentive companies have to avoid paying taxes. Many of these strategies hurt us people more than the abstract “corporation”. Two extremely worrisome potential corporate responses–
- Raising prices to offset tax increases
- Relocating to another country
This last one could be a real killer. For the first time in anyone’s memory, we are living a truly global economy. Why should a company operate in the U.S. when it has so many options that would reduce its tax burden and not interfere with its ability to conduct business? The technology is there. More and more, proximity to key markets is there. Plus, other countries are welcoming business investment and trade at the same time we’re talking about tariffs and trade restrictions. If we think it’s a problem losing jobs overseas, what happens when we lose entire companies overseas? What happens to tax revenues then? What happens to our standard of living then?
On the other hand, lowering tax rates leads to business expansion. Business expansion leads to wealth creation. Wealth creation leads to more jobs, higher personal income, further reinvestment in business — and more tax revenue. You don’t have to be an economist to see this. Where I live, all you have to do is look out the window.
The Cook County Board recently raised the county sales tax by 1%. Now, Chicago has the highest sales tax of any major U.S. city — a whopping 10.25%. To see how consumers are reacting, click here. To make a long story short, they are shopping in nearby communities or online. Either way, Chicago businesses lose and “foreign” businesses gain. And Cook County’s chronic budget deficits remain intact.
This sort of thing has been happening in Chicago for as long as I can remember. Corporations have left the city for greener pastures due to the high cost of doing business. And I’m not just talking about leaving Chicago for Mexico or China. Huge companies such as R.R Donnelly have moved a few miles to more hospitable suburbs. Although Chicago has made a real comeback in recent years (an anomaly for a U.S. urban center), the fact remains the suburbs have flourished while the city has struggled to make ends meet.
If the tax raisers have their way, I fear our whole economy may wind up like Chicago (or Detroit) and the rest of the world’s will look like the suburbs.
6 Responses to U.S. Must Slash Corporate Tax Rates Now
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Good one, Brad! Couldn’t agree more. It kills me that so many folks can’t see the obvious because they’re so focused on the “me” *sigh*. :-\
Bob, I hear the Texas economy is booming right now because the new governor has been lowering taxes. Is that true?
You know Brad, I’m embarrassed to say I have no idea! I pretty much gave up following most of the news since there was nothing I could do about it! But I have to say, I haven’t noticed any lower taxes lately.
Must be something specific, though. We don’t have a state income tax, so that can’t be it. The only taxes I can think which might be lowered are property taxes.
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