CDZ Tax and Spend, or Don't tax and Spend, Or

[usmbguest5318]

In my view, we had to cut corporate taxes to bring the US into line with most other 1st world countries.

??? -- Table II.1. Statutory corporate income tax rate

 

[usmbguest5318]

Well, OP-er, I'm unwilling to choose among and enumerate the thousands (tens of thousands?) of government programs that should or should not be funded. What I am willing to do is offer one idea I have about how one aspect of government spending should change.

I would propose that members of Congress no longer be paid a salary and that instead they be given room and board -- in something akin to a 535 unit apartment building consisting mostly of modest studio and one bedroom units, with 1 bedroom and a den for majority/minority leaders and whips -- along with transportation and travel allowances.

I don't think one should have to dig into one's pocket to serve in Congress, but neither do I think one should be paid nearly $200K/year (nevermind that they don't actually spend 2088 hours or more doing federal legislation-related business) to come to D.C. and be as ineffectual and half-assed as they are. I think Congress would become a lot more productive if its members were answerable to the people in order to get paid.

Alternatively, we might implement periodic election wherein the only measure under consideration is whether, for the preceding four months, to pay members of Congress (an all get paid or none get paid measure) a salary for what they accomplished. Regardless of the vote outcome, they'd still be accorded the living and travel allowance support I mentioned above.

 

[task0778]

In my view, we had to cut corporate taxes to bring the US into line with most other 1st world countries.

??? -- Table II.1. Statutory corporate income tax rate

Are you seriously questioning the fact that prior to the tax cut bill the US corporate tax rate was among the highest in the world, if not the highest?

IMHO, we do not have a revenue problem, we have a spending problem. We simply cannot afford all of the gov't programs and agencies we have today, both defense and non-defense. What we're doing and have been doing for quite awhile is generational theft, racking up huge debt that future generations will be stuck paying the interest for. Clearly, neither party has any room to point fingers at the other side.

 

[usmbguest5318]

In my view, we had to cut corporate taxes to bring the US into line with most other 1st world countries.

??? -- Table II.1. Statutory corporate income tax rate

Are you seriously questioning the fact that prior to the tax cut bill the US corporate tax rate was among the highest in the world, if not the highest?

IMHO, we do not have a revenue problem, we have a spending problem. We simply cannot afford all of the gov't programs and agencies we have today, both defense and non-defense. What we're doing and have been doing for quite awhile is generational theft, racking up huge debt that future generations will be stuck paying the interest for. Clearly, neither party has any room to point fingers at the other side.

You wrote:

In my view, we had to cut corporate taxes to bring the US into line with most other 1st world countries.

To which I responded:

??? -- Table II.1. Statutory corporate income tax rate

And you've now responded to my admittedly ambiguous question with the following request for clarification:

Are you seriously questioning the fact that prior to the tax cut bill the US corporate tax rate was among the highest in the world, if not the highest?

My response to your question is:

As a matter of fact, no, because repeatedly, research showed that prior to H.R. 1-2018, U.S. corporations already were paying federal corporate income taxes at rates comparable to those of other first world countries. My question has to do with why you or anyone allowed yourselves to be deluded by the hype about statutory corporate tax rates rather than be informed by the reality of the actual tax rates at which U.S. corporations pay federal income taxes. The hype has three dimensions:

• that U.S. corporations were not paying taxes at rates materially comparable to or below that their peers in other nations paid,
• that the U.S.' higher statutory rates somehow compromise the competitiveness and/or growth of U.S corporations, and
• that profits held offshore somehow disadvantaged U.S. goods and services providers.

The problem with the hype is that upon close scrutiny, none of its three assertions hold water and that only by close scrutiny does that become apparent, and close scrutiny of the sort needed to see that requires (1) having a strong foundation in economics and accounting and (2) reading a whole lot of very dry technical content.

COMPARABILITY OF CORPORATE TAXES PAID

All U.S. Corporations:

• GAO --> "Effective Tax Rates Can Differ Significantly from the Statutory Rate"
  • Profitable U.S. corporations paid U.S. federal income taxes of about 13% of their pretax worldwide income in 2010, the most recent year for which data are available. The effective tax rate was about 17% when foreign and state and local income taxes are included.
• Journal of Economic Perspectives --> "Taxing across Borders: Tracking Personal Wealth and Corporate Profits"
  • In 2013, the effective U.S. corporate tax rate was 15% for taxes paid to the U.S. government and 19% for taxes paid to U.S. and foreign governments. Out of the roughly 10-point decline in effective tax rates between 1998 and 2013, about two-thirds or more of the decline is attributable to increased profit shifting to low-tax jurisdictions.
• Citizens for Tax Justice --> "What Fortune 500 Firms Pay (or Don’t Pay) in the USA And What they Pay Abroad — 2008 to 2012"
  • A survey of 288 U.S. corporations, which included most of the Fortune 500 corporations that were profitable each year from 2008 through 2012, found that they paid an average effective federal tax rate of just 19.4% over that period. Of 125 U.S. corporations that had significant foreign profits, two-thirds (82) paid a higher effective rate to foreign governments than they paid to the United States on their U.S. profits. Moreover, 26 profitable corporations -- including General Electric, Boeing, Priceline.com, and Verizon -- paid no federal income taxes in that lustrum.

U.S. Multinational Corporations:

• U.S. Department of the Treasury Office of Tax Analysis --> "Foreign Taxes and the Growing Share of U.S. Multinational Company Income Abroad: Profits, Not Sales, are Being Globalized"
  • About 80% of all the foreign income of U.S.-based multinationals was taxed at a 15.9% rate in 2004, down from a rate of 21.3% in 1996.
• IRS and CBO Researchers --> "Taxing Multinational Corporations: Average Tax Rates"
  • The average effective tax rate of all U.S. corporate offshore subsidiaries, known as controlled foreign corporations (CFCs), was just 15.6% in 2006. By comparison, the average tax rate on taxable income for all U.S. corporations was 27.3%. Two industries -- Information and Finance and Insurance -- that are pushing the hardest for international tax reform had effective tax rates on offshore profits of just 15.3% and 11.2%, respectively.
• National Tax Journal (Harry Grubert and Rosanne Altshuler) --> "Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax"
  • 54% of earnings of known U.S. CFCs were taxed at an effective foreign rate of 15% or less in 2006; 46.3% of earnings of U.S. CFCs were taxed at an effective foreign rate of 10% or less in 2006.
• U of Michigan Law & Econ, Empirical Legal Studies Center --> "The Effective Tax Rate of the Largest US and EU Multinationals"
  • The effective tax rate paid by the 100 largest U.S. multinational corporations was about 30% on average from 2000 to 2010, whereas the 100 largest European multinational firms paid an effective tax rate of about 34%.
• Journal of Economic Perspectives --> "Taxing across Borders: Tracking Personal Wealth and Corporate Profits"
  • In 2013, 55% of the $2.1 trillion in U.S. profits that are offshore were in tax-haven countries. Firms paid just a 3% tax rate on these profits.
• Clausing, Reed College, Dept. of Economics --> "The Nature and Practice of Capital Tax Competition"
  • In 2011, nearly half of all U.S. foreign profits (46.5%) were held in just seven tax-haven countries with effective tax rates averaging less than 6.5%.
• Citizens for Tax Justice --> "American Corporations Tell IRS the Majority of Their Offshore Profits Are in 12 Tax Havens"
  • In 2010, U.S. corporations reported to the IRS that the effective tax rate they paid on their profits in 12 tax havens was only 7%.

COMPETITIVENESS AND GROWTH

• U.S. Department of the Treasury Office of Tax Analysis --> "Foreign Taxes and the Growing Share of U.S. Multinational Company Income Abroad: Profits, Not Sales, are Being Globalized"
  • An analysis of nearly 800 large nonfinancial U.S.- based multinational corporations found that “[L]ower effective foreign tax rates do not seem to be important contributors to worldwide growth. The importance of low tax burdens on foreign income for U.S. worldwide ‘competitiveness’ does not seem to have much empirical support.”
• Congressional Research Service --> "International Corporate Tax Rate Comparisons and Policy Implications"
  • “Because of the factors that constrain capital flows, estimates for a [corporate tax] rate cut from 35% to 25% suggest a modest positive effect on wages and output: an eventual one-time increase of less than two-tenths of 1% of output. Most of this output gain is not an increase in national income because returns to capital imported from abroad belong to foreigners and the returns to U.S. investment abroad that comes back to the United States are already owned by U.S. firms.”

AMERICAN BUSINESS LOSSES DUE TO PROFITS HELD OFFSHORE

The CRS report noted just above already addressed this point. That said one need only think about it from the standpoint of one's own purchases too see as much.

Let's say one has a USD denominated bank account (that's the type of accounts US multinational maintain offshore) in, pick a country other than the U.S., and one wants to purchase goods or services from a U.S. supplier. What does one do to make the payment? Either write a check drawn on that account or execute a wire or EFT from that account to the supplier's account. Quite simply, one does not ever have to take possession of the money, thereby repatriating it, in the U.S. in order to spend it in the U.S. Were you instead to transfer the money from your overseas account to your domestic U.S. account, yes, you'd have to pay income taxes on that money you then paid, from the U.S. bank account, to the U.S. supplier from which you purchased "whatever."

So, what U.S. businesses are missing out? Well, potentially, U.S. commercial banks that have less of other people's money to lend. The thing is when since the 2008 housing crisis, which was not caused not by a shortage of available funds to lend, have you heard any bank say it lacks funds to lend? And let's be honest, in considering the merits/demerits of H..1-2018, was anyone advancing the argument that big banks needed to have more money on deposit or that their competitiveness and growth was a principal end of the legislation? I don't think so.​

In consideration of the tax cut corporations just got, there is also the matter that those corporations, notwithstanding the cut, are still paying income tax between 3% and 7% on money they hold in the tax havens where they record their offshore profits. Thus for the U.S. to be comparable, the cut would have to drop those firms' effective tax rate to below that range in order to spur firms to transfer the balance of the cash from there to the U.S.

Now you tell me: If next year research shows that corporations that are held billions of dollars in profits in offshore tax havens realize tax rates of less than 3% by holding the money in U.S. accounts, will people be pissed off that corporations are paying a lower than 3% tax rate on their income?

Bear in mind that the lowest individual tax rate is 10% and because folks paying at that rate don't have the means to avail themselves of myriad "loopholes" like (but not limited to) "carried interest" that effectively allows for perpetual deferral of federal income tax payment on huge sums of cash to which one has current spending access, their effective federal income tax rate and the statutory federal income rate to which they are subject is the same rate. For wealthy individuals and corporations, that just isn't the case, and that it isn't formed the backbone of the hype spewed by the folks who pushed for the lower corporate rate.


Additional Reference -- This may be an easier read than are all the technical papers referenced above: Actual U.S. Corporate Tax Rates Are in Line with Comparable Countries