Republican Policy Response to Increasing Income Inequality
“Labor Share is decreasing so lets cut tax on capital to zero”.
That is it. Literally. When you parse out Paul Ryan’s ‘Path to Prosperity’ or the net effects of Rubio’s tax plan that is what Republicans are pushing as the solution to everything. And pretty much always has been since “Rising Tide”.
Forget the rhetoric and labels about “Flat Tax” and “Fair Tax” and focus on the mechanism and it ALWAYS reduces to “Cut tax on capital”.
Period. End of story. (Unless of course someone wants to treat this as an Open Thread. Because Comments are Open.)
Cut corporate tax rates to zero? A bad plan.
But there is another side to this. Compare US taxes to the rest of the world.
Our major trading partners:
Canada – 26.5%
EU average – 22.25%
OECD average – 25%
China – 25%
Global average – 24%
USA – 40%
If you want to stop tax inversions, the outsourcing of jobs, moving manufacturing outside the US then you have to look to the tax rates as part of the problem.
If one wanted MJ.ABW then you would be looking to lower US Corporate tax rates to be competitive with the rest of the world.
The list of all countries:
@bkrasting, you’re listing top marginal rates, not the rates most companies actually pay. Actual effective US rates are much lower.
Outsourcing of jobs and moving manufacturing are due to lower costs overseas, not the tax on profits in the US. Inversions are a function of US taxes, but that’s a race to the bottom situation (find a single jurisdiction with low rates), not a global average. The location of a company’s legal headquarters has approximately nothing to do with where it has employees or manufacturing facilities.
Thanks for the good KPMG chart Bkrasting . Question. If a corporation is already involved in an inversion would it be true that the corporation is already paying the lower tax rate of the associate country? If it was the Bahamas or the Caymen Islands they would be paying zero corp taxes. So Romney and Goldman Sachs are not so stupid after all. But this does not fully explain why manufacturing left. It was also for lower labor cost of labor intense products-operations. This equals China’s massive gains in everything all within one generation. Which explains why the China bubble is bursting now because this growth is unsustainable…The workers wage will need to be supplemented by having them invested into a Global Wealth Inversion Fund that is made up of all US corporate inversion companies or something like it so they can also participate in the capital gains…What we are actually talking about is the re ensurfment of the American people that will be perpetuated by the passage of the current TPP. IMHO.
“Forget the rhetoric and labels about ‘Flat Tax’ and ‘Fair Tax’ and focus on the mechanism and it ALWAYS reduces to ‘Cut tax on capital’.”
The Capital Gains tax is now LOWER than the Income Tax. A flat tax would equalize them. What’s the problem?
Details are important. Most ‘Flat Tax’ plans actually eliminate taxes on various categories of capital, including the effective tax on unrealized capital gains that is the Estate Tax. Cite me a specific plan put forward that doesn’t have this effect and we can talk. Example Trumps plan to eliminate Carried Interest. Hurray! No more fees being treated as capital gains at a 23.7% rate!! Except that he would lower the top rate to 25%. And give back whatever new tax on Covered earnings by reduced tax on actual short term gains. What hedge fund/vulture capital partner actually loses on this deal?
It’s the net baby.
If anyone thinks eliminating, or even cutting, corporate tax rates will do squat to change income inequality, I have a bridge in Brooklyn for sale.
Studies repeatedly show that the percentage of corporate profits going to labor has been shrinking for decades, even as corporations report record profits year after year. And then there is Exxon and GE, who paid no tax at all (and near as I know have not decamped for Ireland.)
So if the goal is to do anything to help increase labor’s share, this won’t do it, IMNSHO. More money in corporate coffers and CEO pay envelopes has not, and will not, mean any better conditions for the average schmoe.
“Cut corporate tax rates to zero? A bad plan.”
It will never happen. Congress will not cede it’s hold over corporations.
But why do you say it’s a bad idea? Corporations are collections of people — employees, owners, and creditors. Just tax the income when it gets to the individuals — the wages of the employees, the capital gains and dividends of the owners, and the interest payments to the creditors. Then you can tax all income at the same rates.
It would make our companies more competitive globally just on the tax situation alone; they would make decisions based on the business, not on tax consequences; , and they could divert intellectual capital from tax computation and avoidance to product development and production.
What’s not to like?
Warren I think you made a typo with this:
Let me fix it for you:
Snark aside, corporations qua corporations consume public resources quite apart from reported proftis or earned income. For example economic crimes against corporations consume significant local, state and esepcially Federal law enforcement resources. And much of the work of the Federal Courts revolves around Company X vs Company Z disputes that by their nature are negative gain events after litigation expenses. A substantial part of what the Coast Guard and even the Navy do is to provide safe navigation for commercial cargo with no discrimination between cargoes carried by or for non-profitable vs unprofitable enterprises.
As somebody said once “Corporations are people my friend”. Yes people who ON THEIR OWN ACCOUNT consume government resources and have an obligation to pay for them quite apart from the responsibility of their shareholders to pay taxes on ultimate gains.
Is the burden on government from corporate operations directly proportional to their ultimate profits? No. Probably nothing is more expensive for government at all levels than a company that is going through bankruptcy in the courts. The cost of funding direct support of corporate operations at large should fall on corporations as people. Not on the stakeholders.
That is funny.
In addition to my above comments I believe that it will become necessary for the Supreme Court to draw a distinction between private labor and public labor contracts. As the law currently stands the public sector contracts are written all too often with no push back on huge gains that have basically become unaffordable to many governments. Scott Walker tried and failed but I don’t think this fight is over yet…Sanders family medical leave plan is a joke of an investment to be paid for out of increased payroll taxes…What you say?
You are aware Wisconsin Public Unions can not go on strike? It is illegal for them to do so. This is the push back. The affordability of benefits to which much has been said about in the news media is the result of states failing to set aside adequate funds with the hope they will make it up in investment returns. Instead of granting tax breaks to business and the upper income brackets, states should have been squirreling their money away.
I am trying to figure out why a corporation that receives immense benefits from their incorporation should not be taxed.
It is a voluntary tax they have decided to pay.
Now, if we could actually get them to pay their taxes that would be nice.
Taxes = Overhead or the cost of doing business in the US. Overhead is the one reason companies choose to relocate overseas or Invert to avoid Overhead Costs and the US does not have any restrictions to come back into the country and sell product. Of course we could raise POS taxes for those companies which move overseas or use Inversion. The US is still the largest consumer market globally.
We keep hearing about a flat tax on personal income. How about a flat tax on corporations? First get rid of all corporate tax breaks and loopholes, and then tax profits at a flat rate. Wouldn’t that be the “fair” thing to do?
Corporations get huge government subsidies in terms of having limited liability, immortality and access to government services. They should pay for them. If a corporation doesn’t like our tax laws, they can move elsewhere, produce elsewhere and SELL elsewhere. It takes government and money to build and maintain a large middle class marketplace. Corporations around the world rely on the US middle class as customers. They just don’t want to pay for it, and our middle class is shrinking in consequence.
There is a feeling, particularly among conservatives, that the government somehow owes them free stuff. Having to pay for a government service is some sort of unfair and unjust imposition. I think this has to do with their never having gotten over their mommy issues which also explains a lot of their misogyny and emnity to school teachers in particular.
So why not move from a profits tax to a turnover based franchise fee at the federal level for corporations with perhaps a 10 million dollar exemption level. I.E. the first $10 million would not pay the say 1-2% franchise fee. This actually levels the playing field in that corporations loosing money still pay the fee
There is no reason as long as it is based upon selling in a US market. The franchise or POS tax could be inescapable. Point of Sales tax would force them into a tax on growing sales. If they seek to move overseas, then remove any exemption level (something I had not considered).
What I have in mind is similar to what a number of states have with is a fee to allow one to partake in business as a distinct legal entity. Of course it would be a very simple tax form, enter us sales, deduct the 10 million exemption and multiply by the rate. You would lay a lot of tax attorneys and the like off in companies. Actually the idea of a profits tax (which is what the corp income tax is) does favor the continuation of companies that loose money as they pay no tax and in fact over time generate an asset that means you can sell the company for the tax losses.
You’ve got a fair point about my “typo”, Bruce.
But it goes both ways. Corporations would not bother buying congresscritters (renting them, really), if Congress were not granting them tax exemptions and write-offs.
But what it boils down to is this: “The cost of funding direct support of corporate operations at large should fall on corporations as people. Not on the stakeholders.”
Why? Why tax the corporations directly (which amounts to a flat tax on all shareholders and employees), rather than tax the individuals when they get the money?
“Point of Sales tax would force them into a tax on growing sales.”
Is that like the sales taxes that many States have?
“And then there is Exxon and GE, who paid no tax at all”
That looks like a 39% effective tax rate to me.
Warren that is not how you calculate “effective rate”.
Of course your taxable earnings after all possible deductions and credits are taxed at the published table rate. That is what “taxable” means. If you calculate it that way everyone pays the book rate as effective rate.
What was the tax if based on “operating profits”?
I was only responding to Sandi’s assertion that Exxon paid no taxes. Nothing more.
My bad, Warren. My numbers were out of date.
“There is a feeling, particularly among conservatives, that the government somehow owes them free stuff.”
Like birth control, health insurance, welfare, and a comfortable retirement?
Like grazing rights, mineral rights, and just this morning tariffs against Saudi oil and efforts to actively support oil extraction in a saturated market. As if nothing will solve the revenue problem for Oil States and Big Oil of $30 oil like relaxing production controls on U.S. oil patches and undersea reserves.
“Like grazing rights, mineral rights, and just this morning tariffs against Saudi oil and efforts to actively support oil extraction in a saturated market.”
Obviously, grazing rights and mineral rights should be leased and sold in an open market. But, on what land? Land owned by the U.S. government? Where did the States give the U.S. government the power to own lands in their borders?
As for tariffs, is it the liberals who want free trade?
Warren you got to be shitting me. Every State west of the Mississippi was a creation of the Federal Government out of land acquired BY the Federal government by purchase, treaty or conquest. Your argument suggests against all historical evidence that creation of a State automatically transferred title of all non-private land to the State.
Where on Earth did you drag THAT idea up from?
Maybe he is sitting over there with Bundy at the Wild Life Refuge in Oregon?
http://proliberty.com/observer/20010802.htm The Big Lie: Federal ownership of public lands
http://www.fieldandstream.com/blogs/the-conservationist/senate-this-land-isn%E2%80%99t-your-land This Land isn’t Your Land
http://www.ammoland.com/2015/04/senate-votes-in-favor-of-public-lands-seizure/#axzz3wz5ypsnt Ammoland Senate Votes in Favor of Public Lands Seizure
http://790talknow.com/foxfeedspro/details/item_284255/showdown-states-move-to-take-back-land-from-feds/ States Move to Take Back Land from Feds
Don’t ask, just know I read just about anything when I am on a plane for 12 to 16 hours. Or laying in a hospital bed for 4 days straight and not allowed to get up.
The proliberty guy needs a quick course in property law. Particularly in regards to a “quit claim deed”. A quit claim deed doesn’t grant title, it simply clears title from actual or potential clouds. The rest of it is an equal legal and historical mismash. I don’t even dare read the Constitutional Scholars of (God Help Us ) Ammoland. I’m betting they are for the 2nd Amendment a little.
The sites I cited were meant to give an idea of what was being thought by both people and legislators. 🙂 I was smiling. The two SCOTUS cases establish a foundation for the actions of the Administrative branches (BLM, etc.) to do what they are doing and also the Legislative branches as established by SCOTUS. The Federal Gov. has the power to control lands as interpreted by SCOTUS in court case decisions. The BLM can regulate and create rules and regulations to administer (administrative) the land under the jurisdiction and legislative power of the Congress (legislative branch) of the United States. The rancher/squatters are not looking at case law / interpretation of the constitution and have leaped back to the Constitution for their basis thereby ignoring the 3rd branch of the government. Bundy and his associates are wrong.
Run I get that. I am not sure Arne did.
And there is a solid case that 10th Amendment arguments about “powers reserved to the States” in re which entity controls public lands are hooey. The Federal Government established its authority over public lands and education in the Land Ordinance of 1785. This act, which underlies the Chain of Title for private property in most of the U.S. west of the Appalachians asserts federal control over dispersal of all lands even as it MANDATES future support of education by setting aside ‘school sections’. https://en.wikipedia.org/wiki/Land_Ordinance_of_1785 That is NEITHER control of public lands NOR education were “reserved to the States” as NOTHING in the subsequent Constitution of 1789 was taken to abrogate this Ordninance. Which to repeat is THE INITIAL LINK IN THE CHAIN OF TITLE in almost all the States in dispute here.
These were powers NOT reserved to the States but instead EXERCISED by the central government even BEFORE THE CONSTITUTION. So Originalists can choke on it.
Ok. I answered to Arne in the hope you would see it.
From Jefferson, actually:
“The Louisiana Purchase Treaty would not be final until it was ratified by the Senate, funded by the House of Representatives, and signed by the President. While the incorporation of these new lands into the United States was a momentous opportunity, Jefferson had reservations about its constitutionality. Jefferson had always stated his strong belief that the federal government’s powers should be interpreted strictly. Article IV of the Constitution said new states could be added, but made no provision for taking on foreign territories, Jefferson argued that a constitutional amendment was needed. He wrote in 1803, ‘The General Government has no powers but such as the Constitution gives it… it has not given it power of holding foreign territory, and still less of incorporating it into the Union. An amendment of the Constitution seems necessary for this.'”
Not responsive Warren. First of all it is not important what Jefferson SAID in 1803 it is what he DID that year. And from a source as fully qualified as the one you cite (which is to say take it or leave it and consider the source) i.e. Wiki ” Before the purchase was finalized, the decision faced Federalist Party opposition; they argued that it was unconstitutional to acquire any territory. Jefferson agreed that the U.S. Constitution did not contain explicit provisions for acquiring territory, but he did have full treaty power and that was enough.”
PLus I could grant you all that and you still haven’t answered the question of what act or Act actually transferred ownership to States. Particularly since the Homestead Act was in place before during and after the establishment of many States and INDIVIDUALS derived LAND TITLES that are STILL at the bottom of the Chain of Title via FEDERAL LAND GRANTS and claims filed under the FEDERAL HOMESTEAD Act. Per you every mining claim made after Statehood is in fact illegal. Because not granted by the State. Which will come as a surprise to a lot of mining companies.
The Bill of Rights Institute, established in September 1999 by the Charles G. Koch Foundation, is a Virginia based nonprofit launched by Koch Family Foundations that promotes a teaching a conservative interpretation of the Constitution in schools.
You on the right thread?
For something less radical than Koch:
The Property Clause of the U.S. Constitution states that “Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States ….” (Article IV, Section 3, Clause 2).
The U.S. government owns 30% of the land within its territory, and a far higher percentage in western states. In Nevada, the U.S. government owns over 80% of the land.
Some supporting SCOTUS decisions. I am sure there are more around and if Bev answers me, I will let you know.
The US held the Northwest Territory from the signing of the Constitution, so Jefferson was complaining about something which had been in place for over a decade. It also modified the ownership of quite a bit of land well before Jefferson purchased Louisiana.
If you want me to keep treating your analyses as a fellow engineer with some respect, you need to do a little more research on your own.
“Congress cannot delegate legislative power”
So DC “Home Rule” is unconstitutional? Interesting.
Ya Myron, that would make delegating legislative power to newly created States unconstitutional as well. Or if not that then to Territorial Legislatures. Alaska wasn’t a State until 1959, Hawaii until 1960 or more than 60 and more than 75 years since acquisition. That is a lot of Case law to throw out the window.
Snark doth not become thee.
In any case, it seems to me that corporate income taxes do several things, and none of them good.
1) Causes corporations to waste resources on tax computation and reduction,
2) Causes corporations to make business decisions based on tax consequences, not business conditions, and
3) Causes corporations to take the taxes, and the cost of computing them, from one of three sources:
a) Consumers — increasing prices and making our products less competitive with imports,
b) Employees — lowering wages, and
c) Owners — making foreign investments more appealing.
Item 3a is essentially a flat tax on consumption, which naturally hits the lower income people more. Item 3c hits retirees pretty hard, as their 401(k) investments are taxed at the corporate level and again as ordinary income (not at the lower capital gains or dividend rate) when withdrawn.
I am not suggesting that earnings from capital not be taxed, but that such earnings be taxed when it gets to the individuals and taxed as ordinary income.
I was responding to Warren’s “Where did the States give the U.S. government the power to own lands in their borders?”
I was surprised to see how many people posting elsewhere on the web think that makes sense. I did not bother with Supreme Court decisions since I am aware that many originalists think they are better at interpreting the Constitution that the Supreme Court. You even get some people arguing that anything after the Bill of Rights is not really Constitutional.
And many of those people not believing much in the amendments between 2 and 10 or in First Amendment rights for other.
Selective reading. Much like much bible “studies”. Skip right from Leviticus to St. Paul’s Letters while skipping those pesky Gospels and Acts.