Why a High Corporate Income Tax Is So Damaging to Our Economy

 

My previous post, “Fundamental Tax Reform Is the Key to Solving Our Economic and Fiscal Problems II.  The Graetz Plan”, describes a tax reform plan which establishes a 14% national consumption (VAT) tax, exempts families earning under $100,000 from paying any income tax and also reduces the Corporate Income Tax to 15%.  All of this is done in a revenue neutral manner while also preserving all of the progressivity of our current income tax system.
CaptureA recent Op Ed column in the New York Times, by the economist Lawrence Kotlikoff, “Abolish the Corporate Income Tax”, makes the case that such a proposal “might sound like a gift to the rich, but it would actually help workers. … Apple’s tax return says it all:  The company, according to one calculation, paid only 8% of its worldwide profits in United States corporate income taxes, thanks to piling up most of its profits and locating far too many of its operations overseas.”
Our corporate income tax rate, at 35%, is one of the highest in the world and this is what encourages American multinational companies to move their business to other countries.  Whether we abolish the corporate income tax entirely, or just reduce it to 15%, is less important than recognizing the need to overcome popular prejudice about big business and make fundamental changes in our tax structure.
Solving our country’s many problems, from rising inequality at home to projecting adequate strength around the world, requires that the U.S. have a strong economy.  An annual growth rate of 2% of GDP is not nearly good enough to end our current economic stagnation.  To accomplish this will require overcoming the strong headwinds of increasing global competition and the replacement of people with machines.  We will need innovative thinking and initiative to break out of the old ways of doing things which are holding us back.
Are the American people “exceptional” enough to accomplish this challenging task?

2 thoughts on “Why a High Corporate Income Tax Is So Damaging to Our Economy

  1. This is great. I worry so much about the preoccupation with income inequality. I think those who want to reduce income inequality want the government to redistribute income through taxes and handouts. This will not improve quality of life. Be careful what you wish for. Maybe we can hope Dems will focus more on increased quality of life.

    Steve

  2. I’m in favor of reducing inequality but the question is how to do this in the most effective way. Should we emphasize handouts or more opportunity? In reality we need to do both but at the present time it is opportunities which are most lacking. That’s why we need to focus more strongly on boosting the economy. This is where tax reform is so urgently needed.

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