At a maximum rate of 35 percent, the U.S. corporate tax rate is one of the highest in the world, and the highest of all the advanced, industrialized nations. And then there is corporate income tax on the state level. Forty-four states and the District of Columbia levy a corporate income tax with rates ranging from 4 percent in North Carolina to 12 percent in Iowa. Nevada, Ohio, Texas, and Washington impose more insidious gross receipts taxes instead of corporate income taxes. Delaware and Virginia impose both; South Dakota and Wyoming impose neither.
Some companies are fleeing the United States because of its crushing tax burden.
As recently pointed out by Timothy Doescher and Karl Keyzer-Andre at the Heritage Foundation’s The Daily Signal (“Here Are 6 Reasons to Lower the Corporate Tax Rate Immediately”):
Politicians and pundits often talk about companies moving operations to more friendly corporate tax countries, and they are right to do so. The corporate tax climate in the U.S. is a major factor in companies’ decisions to move abroad.
Clearly, corporate inversions are a problem that needs to be solved—but using regulation to keep companies on U.S. soil is the wrong way to solve the problem. Using executive orders to force companies to stay fails to address the deeper reason companies are fleeing.
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The authors give examples of six U.S. companies that bought or merged with foreign companies and relocated their legal domicile to a lower-tax nation: Burger King to Canada, Liberty Global PLC to the United Kingdom, Tyco International PLC to Ireland, Medtronics PLC to Ireland, Waste Connections Inc. to Canada, and HIS to the United Kingdom.
The corporate tax rate is 15 percent in Canada, 20 percent in the United Kingdom, and 12.5 percent in Ireland. Even when all the tax breaks, credits, deductions, and loopholes are factored in, the effective U.S. corporate tax rate is still much higher.
The Heritage authors conclude about corporate inversions:
To address that problem, Congress should pass sweeping corporate tax reform that dramatically lowers rates, making America the most attractive place in the world to do business.
An ideal reform would bring rates as low as possible for both small and large businesses. This rate should at least make us competitive with the Organization for Economic Cooperation and Development average.
This is certainly a good idea, but there are six other reasons to lower the corporate tax rate immediately.
- All taxation is government theft. Taxes of every variety should be abolished. The government is not entitled to a percentage of the profits of corporations any more than it is entitled to a percentage of the incomes of individuals.
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- Corporations don’t pay taxes; people do. Corporations are owned by shareholders: large pension funds, 401k plans, university and other endowments, and individual investors. The corporate income tax is just another government mandate that raises the cost of doing business—just like the minimum wage, unemployment taxes, the employer share of payroll taxes, health-insurance mandates, family-leave requirements, and government regulations. The corporate tax burden is borne by shareholders through lower dividends and share prices, passed along to consumers through higher prices, and paid by workers in companies in the form of lower wages.
- The corporate income tax is a hidden tax. It is not withheld from anyone’s paycheck. It is not a line on the 1040 tax form. It is not added to the cost of each purchase like sales taxes are. It is not a bill that one receives in the mail from the government. It is easy for liberals, progressives, and Democrats to persuade the typical American worker to support the corporate tax since it is a tax that he thinks he is not paying. But of course, he is paying it. Just like he is paying the federal tax on airline tickets and just like he is paying the federal and state excise taxes on gasoline even though these things don’t necessarily show up on his receipt.
- The corporate income tax is a double tax. The same income is taxed once at the corporate level as profit and then again at the individual level as income when it is distributed as dividends to shareholders. It is a double tax just like individuals having to pay an income tax and a payroll tax on the same income.
- The government doesn’t “need” the money from the corporate income tax. The corporate income tax is a small part of federal and state tax revenues. According to the Treasury Department’s Fiscal Year 2016 Financial Report, corporate income taxes in 2016
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accounted for 8.8 percent of the federal government’s total revenue. According to the Tax Foundation: “Corporate income taxes account for just 5.3 percent of state tax collections and 3.9 percent of state general revenue.”
- Cuts in corporate income taxes don’t have to be “paid for” with economic growth or offsetting tax increases. Every penny kept out of the hands of Uncle Sam and kept in the pockets of Americans (individually or corporately) is always a good thing, whether it results from lower tax rates or an increase in tax deductions. Only a statist who believes that the government is entitled to a percentage of every corporation’s income and that cuts in the corporate tax deprive the government of its claim to that percentage could object to corporations holding on to more of their money.
No businesses—large or small, corporations or sole proprietorships—should have to pay any taxes on their profits. The corporate income tax should be lowered immediately and then eliminated altogether. President Trump’s proposal to lower the corporate tax rate is therefore a great thing, even if some of his other tax reform ideas are without merit.
