Corporate Tax

All the following quotes are from an article published in The Globe And Mail, written by Doug Saunders.

The moment I first suspected that the U.S. economy had become a mathematical impossibility occurred almost 10 years ago, when, as a California taxpayer, I received a second cheque in the mail.

The first had refunded all but a few hundred dollars of my income tax: Thanks to president George W. Bush's tax cuts and existing loopholes, many full-time employed folks like me paid almost nothing. The second cheque, sent from Mr. Bush's campaign hub of Austin, Tex., and bearing his name on the attached letter, was his signature rebate, delivered to every single taxpayer. It was for about $700.

This three-figure gift had a few consequences. First, it pretty much guaranteed Mr. Bush's 2004 re-election. Second, it was part of a big tax cut that sent government debt spiralling – and most of that debt went into consumer spending, causing a vast outflow of dollars to China in exchange for even more private and public debt.

Translation: The economy is mathematically impossible because George Bush refunded personal income tax, increasing the debt, in order to help get reelected.

And third, it meant that an even larger burden of taxation fell not on individuals but on corporations, which face a U.S. tax rate of 35 per cent, one of the highest in the world.

Translation: Bush's tax refund meant that corporations paid more taxes than individuals.

But corporate tax, by its nature, has a reverse Robin Hood effect: It is regressive. Big corporations have no trouble avoiding it. They can do any number of things, including acquiring other companies or shifting profits to overseas divisions, that make their balance sheets legally register zero profit. So small- and medium-sized businesses end up paying the full burden – a situation that chokes off entrepreneurship, reduces competitiveness and damages economic growth. This proved to be a toxic recipe. By burdening small family businesses with a greater share of taxes and thus wounding domestic production while sending well-off individuals on an import-heavy spending spree, Washington created a debt crisis.

Translation: Big corporations use accounting tricks to avoid paying tax, while small businesses pay tax.

On Wednesday, this finally seemed to have registered with President Barack Obama as he delivered a blistering speech on tax hypocrisy. He asked Congress to reverse his earlier decision to extend Mr. Bush's ridiculous non-taxation of well-paid Americans. But equally importantly, he realized that something is deeply wrong with corporate tax. He talked about ending the most egregious loopholes that allow big companies to escape it. And he talked about lowering its rate.

Translation: Obama wants to reverse the tax cuts for the very rich and to close the tax loopholes that allow big corporations to pay no tax.

He should have talked about abolishing it. So should Canadian and European leaders. The taxation of corporations as if they were individuals has become a worldwide failure. The U.S. crisis offers only the most cartoonishly exaggerated illustration of the problem.

Translation: Corporate tax bad. Obama should abolish corporate tax altogether.

Corporate tax has become the great divider in the years after the 2008 crisis – a universal source of rage and exasperation, of inequality within countries and unfair competition between them. In London this year, I've witnessed riots against huge chain stores that have managed (legally) to pay zero tax. In Ireland, the country's corporate rate of 12.5 per cent, the lowest in Western Europe, has become the object of a tug-of-war between Irish officials desperate to keep it and the German bankers bailing them out, who see it as a threat. In Canada, an election is being fought between Conservatives who would cut it to 15 per cent and Liberals who would raise it back to its 2010 level of 18 per cent.

Translation: Corporate tax bad. People are upset that big corporations can use loopholes and accounting tricks to avoid tax. Ireland has low corporate tax, but their banks need a bailout. Political parties in Canada disagree about the corporate tax rate.

So corporate tax is "the great divider", and "a universal source of rage and exasperation"? I guess personal income tax is the uniter and universally loved by all?

In fact, the strongest arguments against corporate tax come from the left. They were most eloquently expressed by Robert Reich, the economist who was fired from his position as Bill Clinton's labour secretary for being too left-wing.

Translation: Someone from the political Left opposes corporate tax, so even if you're on the political Left, you can agree we should oppose corporate tax.

Corporate tax, he noted, is fundamentally regressive: It shifts wealth to the rich. And not just because General Electric avoids it and corner shops don't.

Translation: Corporate tax shifts wealth to the rich. How exactly this happens is unknown, perhaps some sort of magic.

Since corporations do not physically exist, corporate tax is ultimately paid by individuals – and, as many studies have shown, those individuals tend to be the company's workers more often than its shareholders or executives.

Translation: Corporations do not really exist, so when they pay tax, it's really people who are paying tax. Big corporations manage to avoid paying any tax, but most of the tax they pay is paid by the workers.

If big corporations don't pay tax, then how can the workers of big corporations be paying that tax? Clearly magic again.

There is another strong argument against corporate tax: It gives businesses far too much power in politics, law and society. As "taxpayers," corporations are given citizen-like rights in court and legislatures; as financiers of the state, they are given far too much lobbying power and influence over legislation – almost obligatory given their large taxpaying role.

Translation: Even though big corporations don't pay tax, the tax they pay gives them power in politics, law and society. You might have thought that lobbyists and corporate political contributions were what gave corporations their influence in politics, but it's really the tax they don't pay.

The Canadian documentary The Corporation ironically made the strongest argument against corporate taxation. It turns corporations into de facto humans, which is not healthy for democracy.

Translation: Remember how big corporations are imaginary and don't pay any tax? Well, the tax they pay turns them into people, people who don't pay tax.

A truly fair and healthy tax system would place the burden entirely on personal income tax, which is the most progressive and far harder to avoid. That would solve all these problems. It would also dramatically raise income tax for people like me. Not an election-winner, but a necessary move to restore sense to the world.

Translation: I'm willing to pay more tax because big corporations shouldn't have to pay the tax they avoid paying through loopholes and clever accounting tricks.

The article is based on nonsensical ideas and statements that contradict each other. If corporations can already use loopholes to avoid paying tax, then we don't need to eliminate corporate tax because they aren't paying it anyway.

Taxes are necessary to pay for police, fire departments, roads and other civil services and infrastructure and corporations make use of these services just like people do, so they should help pay for them.

The money has to come from somewhere, and those who are most able to pay, should pay. Taxing small businesses and entrepreneurs might make the difference between success and failure, so they should get tax breaks, and the loopholes that allow large, well-established corporations to avoid tax should be closed.