Newspaper article International New York Times

Abolish the Corporate Income Tax

Newspaper article International New York Times

Abolish the Corporate Income Tax

Article excerpt

Eliminating or at least lowering the corporate tax rate would help America's workers.

Jobs don't grow out of thin air, especially well-paying ones. They require, among other things, companies that are willing to operate where you live. Just ask the Seattle-based District 751 of the machinists' union, which was worried that Boeing will build its new 777X airliner someplace far away where it is cheaper to produce. Last month the union offered contract concessions, as its president explained, to ensure "the long-term success" of Boeing in Washington State. And on Friday, Boeing machinists approved a contract with concessions to keep assembly of the plane in the area.

In recent decades, American workers have suffered one body blow after another: the decline in manufacturing, foreign competition, outsourcing, the Great Recession and smart machines that replace people everywhere you look. Amazon and Google are in a horse race to see how many humans they can put out of work with self-guided delivery drones and driverless cars. You wonder who will be left with incomes to buy what these robots deliver.

What can workers do to mitigate their plight? One useful step would be to lobby to eliminate the corporate income tax.

That might sound like a giveaway to the rich. It's not. The rich, including Boeing's stockholders, can take their companies and run -- and not just from Washington State to, say, North Carolina. To avoid our federal corporate tax, they can, and often do, move their operations and jobs abroad. Apple's tax return says it all: The company, according to one calculation, paid only 8.2 percent 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.

I, like many economists, suspect that our corporate income tax is economically self-defeating -- hurting workers, not capitalists, and collecting precious little revenue to boot.

The United States may well have the highest effective marginal corporate income tax rate of any developed country. Jack Mintz, a public finance economist and director of the School of Public Policy at the University of Calgary, puts the rate close to 35 percent, which is also the statutory rate. Other economists, using different techniques, calculate the marginal rate to be as low as 23 percent. But both figures are miles above zero.

They are also miles above our 13 percent average corporate income tax rate -- the ratio of corporate taxes to total corporate profits. The fact that the marginal tax rate, whether 23 percent, 35 percent or somewhere in between, is so much larger than the average rate suggests that a sizable share of corporate profits and production is ending up overseas and untaxed.

Making, rather than just stating, this case requires constructing a large-scale computer simulation model of the United States economy as it interacts over time with other nations' economies, and then seeing how the model reacts when you change the American corporate income tax. …

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