Corporate Taxes: Who’s Really Losing Out?


At 35%, the US has one of the highest corporate federal tax rates in the world.  Business and conservatives argue that it’s too high, therefore companies increasingly take their headquarters and cash internationally to avoid high tax rates.  That’s cash that could otherwise be reinvested in development within the states.  This is essentially what’s happening with the Burger King and Tim Horton’s deal, brokered by Warren Buffett that may move the headquarters to Canada.

On the other hand the effective tax rate, or what companies actually pay tends to be substantially lower than 35%.  This is due to accounting practices such as depreciation and write offs, coupled with our complicated tax code.  In the past 5 years GE, Boeing and Verzion have each had a year where they paid no corporate federal taxes.  (http://www.reuters.com/article/2014/02/26/us-usa-tax-corporate-idUSBREA1P04Q20140226)

 

Clearly, the government needs some revenue through corporate taxes but the current system isn’t working out.  Should the federal corporate tax rate be lowered?  Should our tax laws change?  Maybe both?  I’m interested to hear your views whether you are politically left, right or in the middle.

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10 responses to “Corporate Taxes: Who’s Really Losing Out?

  1. I think an interesting way to look at this blog is from the view of Friedman and Jensen. According to Friedman and Jensen corporations maximize the value for society by maximizing their financial value. However, these corporate tax rates go directly against this philosophy by taking money for the government to use how they choose to help society. Both sides argue they are helping society through their actions: corporations help society with business maximization, and possibly even corporate welfare programs, and government uses the taxes to fund government projects. In conclusion, what do you think does more good for society: government action through taxes or corporate activity?

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    • I too agree that both the government can take action to help society though taxes as well as the corporation. I think that it is more of the governments responsibility to help society rather than the corporations. I am not saying the corporations should not help society, but I think that the government is better equipped to make decisions for society as a whole. This is what the governments job is, they are supposed to make society the best it can be. Corporations need to recognize that the government is there to help and they should not intentionally try to cut corners on their taxes. I think that we all need to have a little more faith in the government and trust they will make the right decisions for society.

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    • Brian, you make a good point and it causes me think about Econ 101. I recall that with government investment and stimulus there can be a multiplying effect. For example construction of infrastructure will have a greater net impact on society than paying dividends out to shareholders. That said, rarely is the decision so black and white. Small businesses can be much more agile and innovative than the government. Perhaps it’s just a balancing act?

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  2. I do no think that businesses should have to pay the government so much money in taxes. Government does obviously need to have taxes because they need money in order to carry out their job and help the country. However, if I were a business owner I would be very frustrated if after having a good year, the government were to come am claim so much of my money. I do not blame corporations for trying to find ways to avoid this.

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  3. What if we called taxes “membership premium service fees”? It always interests me that tax talk is about how “the gov’ment” takes from the person or firm. The pretty clear subtext is “takes and doesn’t give back.” Obama walked into a buzzsaw of criticism in 2012 when he was talking about who built what (he was making the point that businesses and the wealthy benefit from infrastructure they didn’t directly build).

    Just imagine if taxes were the “cost of membership” in American society and government? Maybe they are too high, or not. But the point is how labels and language shape our underlying conceptions.

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  4. To play devils advocate to all of the above, what if we did lower taxes to a more reasonable amount, benefitting the corporations. How would this effect our government? Would we go into even more debt then we are in now? What parts of the graph that Jordi posted would suffer the most? Aren’t we already struggling to create the annual budget? How would cutting taxes help?

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