Civitas Review

Corporate Taxation Putting U.S. Companies at a Disadvantage

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Nov
05

This summary of a recent U.S. Dep't of Treasury conference is quite troubling for those concerned about U.S. competitiveness in the global economy. The major finding was:

"Scholars and heads of large corporations have been pointing out the serious problems with the U.S. corporate tax for more than 15 years. There is now a growing consensus that the complex and high-rate corporate tax needs to be overhauled."

It seems that even the welfare-state loving Europeans have at least figured out that heavy taxation on business is, well, bad for business (and bad for job creation, wages, etc).

"Europe is on a corporate tax-cutting binge. The U.S. federal plus average state corporate tax rate stands at 40 percent, which is much higher than the European Union average of 24 percent. It appears foreign rates will keep falling, putting an ever-greater squeeze on U.S. competitiveness."

Unfortunately, so-called "progressives" in this country can not seem to rid themselves of the "make those big, evil corporations pay their fair share" mentality. The reality is that high rates of corporate taxation hurts the little guy most of all.

"Kevin Hassett of the American Enterprise Institute has shown statistically that higher corporate tax rates mean lower worker wages."

This intuitively makes sense: when the owners of capital are allowed to keep less of their income/profits, less capital accumulation occurs; with less capital accumulation there is less money to invest in productivity gains – worker wages are directly tied to productivity so lower levels of productivity gains means less income growth. Furthermore, higher taxation means less money to invest in new job creation. Let us also not forget that higher taxes on businesses puts upward pressure on the prices they charge for their goods. All of these factors hurt the poor disproportionately – leading one to question the "progressive" urge for high corporate taxation in regards to their claim to be advocates for the poor.