The Paradox of Corporate Taxes
2nd February 2011
Arguably, the United States now has a corporate tax code that’s the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades.
My, what a surprise. Aren’t you surprised? I’m sure surprised.
Companies that use loopholes to avoid taxes don’t mind the current system, of course, and they have more than a few lobbyists at their disposal.
And, of course, that wouldn’t matter if lobbyists weren’t so effective, i.e. able to funnel campaign contributions to Congressmen, who then repay the favor by sticking little favors in legislation when nobody who cares is looking.
The problem with the current system is that it distorts incentives. Decisions that would otherwise be inefficient for a company — and that are indeed inefficient for the larger economy — can make sense when they bring a big tax break. “Companies should be making investments based on their commercial potential,” as Aswath Damodaran, a finance professor at New York University, says, “not for tax reasons.”
No shit. But the problem here is that often legislators are trying to ‘distort incentives’ deliberately, using the tax code for social engineering rather than just a neutral way to raise revenue. Henry Waxman of California, Chuck Schumer of New York, and the late unlamented Ted Kennedy represent poster children for this.
The true paradox of ‘corporate taxes’, of course, which by its nature a writer for the New York Times is not permitted to mention (or even think, I suspect), is that CORPORATIONS DO NOT PAY TAXES, THEIR CUSTOMERS DO. This is obvious to anybody who has an elementary grasp of business, which unfortunately nobody receiving a government (or media) paycheck has.