Tax Reform Yaa Yaa, Anyhow It Will Help For Sure!

JimofPennsylvan

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Jun 6, 2007
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Corporate Tax reform is a must for Congress and the President to do if they are to do their duty to make the American economy competitive with other economies throughout the world. But advocates of such reform exaggerate when they say it will increase wages the reasoning being that yes when Washington lowers the corporate tax rate there will be a big jump in corporate net income and theoretically management could spend it on increasing wages but one must factor in how the U.S. economy really works meaning that corporate stock owners especially hedge funds and index fund managers and other large stock holders from a big picture standpoint hold the job fate of top corporate executives and put the focus on evaluating corporations on their quarterly revenue compared to the last quarter's and last year's and the only way that corporate executives can meet the number requirements is if they keep a tight rein on expenses a major one being the wages of their employees so corporate management cannot afford to significantly raise worker wages it puts quarterly earnings too much at risk to do so. Nevertheless, lowering taxes by Washington should be pursued with all possible zeal for it will provide corporate management with additional revenue they will use to strengthen their business which will create jobs not a major amount but a significant amount; those advocates that say such tax reform will create a major amount of new businesses are overplaying the issue there is plenty of capital out there today for corporations to get their hands on if they see a good investment opportunity more revenue in their coiffeurs is not going to create these opportunities.



The tax reform debate in this country has brought to the fore many good ideas but one area that has not received the focus it should is allowing corporations to deduct the interest they pay on their debt from their income to lower their tax bill. In part, this is fair and great tax policy and should be continued for many types of corporate borrowing such as corporate borrowing that builds a factory or a business site or is used to acquire capital equipment or hire employees. But borrowing that is used to for corporate management bonuses, payments to private equity and hedge funds as management fees rising out of the fact these entities own a significant part of the business, leveraged buyouts and "stock dividend payouts" is bad and should be discouraged by disallowing such interest deductions. This type of borrowing is a really major evil in American society. For how many corporations went into bankruptcy because of such debt, how many good Americans families were really hurt when a member of the family lost his or her job because their employer was cutting expenses or being sold to pay off the principle and/or interest on such debt.



In this debate on taxes their seems to be a breakdown into at least two groups in America. Those that are adamant that envision no other alternative than lowering the corporate rate to fifteen percent and those that recognize this is a Herculean challenge that probably is not practically achievable and are perfectly fine with settling with a higher tax rate. These fifteen percent Americans need to be open to settling for a reduction in the corporate tax rate that is higher than fifteen percent. It is definitely better for America that the corporate tax rate be taken down from thirty-five percent even if it doesn't approach fifteen percent than the American people to see no reduction in the corporate tax rate at all. The old adage that is really appropriate here is: Don't let the perfect be the enemy of the good!
 
Don't know that I would say that lowering the corp tax rate would in and of itself raise wages, in a way sort of. If you lower corp taxes along with reducing the cost of compliance with regs and take other actions to help businesses cut costs then you get more new businesses and more expansion of existing businesses. What that does is create more jobs, and more jobs means more competition particularly for the skilled jobs and that means higher wages. But in this country it appears we don't have enough of those skilled workers, or in some cases we're importing skilled workers from offshore and paying them less, and something has to be done about that. So I don't know that lowering the corp tax rate will do much for increasing wages but it WILL help do more to create more jobs.

If you look at other countries you will see that time after time those who lowered their business tax rates saw a corresponding improvement in their economies. And those who raised the business tax rates saw a drop, it's Econ 101. Taxes are a cost of doing business just as the cost of labor and inventory and everything else that goes into making a product or offering a service. If you raise the cost of doing business then your price goes up unless you can offset that cost in some way that is usually not to the advantage of your employees. And if you cut that cost by lowering taxes then you can do a lot of positive things, some of which are to the benefit of your employees and also customers. If you raise your prices then you risk losing business to your competitors, some of which are foreign. Not good.

That benefit derived from a drop in tax rates directly correlates to the amount of the tax rate cut. If you only drop the rate by say 5%, BFD. You won't get much in the way of a positive impact from that. But yes, any corp tax rate drop is better than no corp tax rate drop. These days you take what you can get from Washington.
 
Most corps do not pay more than 15% today. If they lower inc taxes, the ceos will just get a bigger pay day. It never , I mean never trickles down.
 

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