Why higher corporate taxes are bad

Bottom line, Why are higher Corp. Taxes wrong?

I too feel there are giant loop-holes for corporations and there is a cause for concern that corporations are going through such lengths to avoid corporate taxes in the US, but is higher taxes really the answer to this? Like Obama wants? My father and Nicky complain that the corporations don’t pay enough in taxes, and they support this aspect of Obama’s campaign, arguing against me on this…. But instead of just accepting Obama’s promises I ask why this is happening and what is creating this effect?

This actually seems to be a predictable effect when taxes are high; it’s something that we have seen happen throughout history see this study http://www.ncpa.org/studies/s159/s159.html, this is a study I found comparing historical tax rates to tax revenue and economic growth amongst different nations and the US. I saw several studies and several articles similar to this online, all with the same repeating story.

So, lets think this out... Historically, not just with corporate taxes but also with income taxes on the rich, we see tax revenues actually drop in times of high income tax, and tax revenue goes up in a era of low taxes… why? I’m glad we asked! It’s because people and corporations will go through greater lengths to avoid paying taxes when they are at higher rates compared to a standard. The standard, or benchmark, for corporate taxes is the average global corporate tax rate of industrialised nations. Here is another article I found on the tax rate in the US compared to other nations that gives you an idea of where corporations would prefer there income taxes paid. http://www.cato.org/pubs/tbb/tbb_0707_48.pdf

I also agree with you there should be steps taken to encourage corporations to pay there taxes, but I feel an essential step would be to reduce the corporate tax to a level more common with the rest of the industrialized world, and when the taxes are lowered that’s the time you start closing the loop-holes (eliminating credits and free lunch discounts congress has passed out), and some of the loop-holes start closing themselves(Small government).For example if there is 15% corporate tax rate in the US, and the average for industrialised nations is 17% then corporations are more likely to want to pay there taxes in the US. I think you would see these corporations start filtering not only the money they do earn in the US but also money earned abroad would be made to look like it was made in the US as to take advantage of the favorable tax treatment, this in essence closes the loop-hole.

If I had my way I feel our overall tax code should be dropped to under 10 pages (Flat Taxes, yet again small government)

Here are some of the concerns when corporate taxes go up
It will put a strain on any economy and limit growth.
It promotes corporations to move outside of the US to other nations with lower tax rates or to shift assets through subsidiaries, in essence getting foreign tax rates and avoiding the US rates!
When businesses move to other countries this in turn lowers job rates (see below for more on the topic of jobs) in the US at a time that the US needs jobs and job growth. (Although I feel global outsourcing is a very important part to a nation in a growth phase, ship’em out, but that’s another debate for another time, and we are not in a growth phase).
Corporations that do pay, have a tendency to pass on these taxes to there consumers and to their employees = less employee benefits, more costly products.

Lets talk about Job growth now, and come back to the tax issue later.
These quotes I am commenting on below are from an email that some one used as an argument that with low taxes we did not see job growth during the Bush admin, this is my response.
"What were Clinton's job growth numbers in 2001??" job growth averaged out at 2.8% for Clinton's administrations two terms... "(Much larger growth then the Bush admin except for Federal government which he shrank)" Well in this case, the democracy-Bush (by which I mean large government, big spending typical of democrats) policies have created an interesting issue. So he lowered income taxes for everyone (but not the corporations tax tables, they remain what they where through the Clinton admin), but you are right, the truth is jobs have fallen since Bush took over office, job growth has shrunk drastically, but this should not be used in this argument (lower/higher corp. taxes support job growth, limit economy, generate higher/lower tax revenues), because there were reasons job growth in the US dropped drastically that were uncontrollable to the Bush administration and not reflective of typical low tax rate eras, lets take a look at those reasons though; of coarse the two bear markets (really three if your consider the dot-com bubble) that the Bush admin has had to endure, 2001 (terrorist), 2008 (financial meltdown), and as well some poor policy from Bush administration over all. Here you can find the data on the employment history in the US, and it shows the drastic drop in employment during the two bear markets.
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS12000000&output_view=net_1mth

In short the bear markets were the reason for the drastically poor job growths through this current administration but, I will give you this, that between 2003-2004 and a lot of analysts did expect a higher recovery to the job growth then what did happen… but, when the JGTRA 2003 was signed into law (the Bush tax cuts) Jobs growth immediatly reacted to this and jobs seemed to gain quite strong in 2005-2006 until yet again another approach on a bear market, This time a systematic financial failure that can be blamed on both the Clinton administration for promoting the buy up of junk mortgages by the government agencies, and the bush admin for lack of oversight on the mortgage industry when taking over Clinton's trash....But can we really expect more from Bush?? lol

Clinton did do a good job with managing the budget, and the reducing the federal deficit, and some might say that job growth was strong and he raised taxes in 1993??? But I think Clinton was smart and new that the tax raises he singed in August 03 would have a negative growth effect, so he raised taxed and then influenced job growths in other ways.. NAFTA signed in (Dec 03) as one of them. But I dont think Clinton needed to do much here to spur growth, the tax increases he made were not that drastic, and there was alot of things happening at the time that kept a confident public... No major wars, no pearl harbors, no runs on the bank, only dot-com bubble and people felt great when Clinton left office beacuase this speaculative market happened to be peaking for him.. Poor Bush, gets into office and starts off with getting the blam on the dot-com bubble snap which plunged the NASDAQ between 2000-20001... Lets get back on topic though

Now let’s go back to taxes and the GAO report and how it might be miss-leading.
The common article
http://www.reuters.com/article/newsOne/idUSN1249465620080812, "57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005." "About 25 percent of the largest U.S. companies paid no federal income taxes in 2005 despite $1.1 trillion in gross sales that year, they said." This is taking a pin out of a hay stack and every lefty media report is circulating this, truly creating a miss-informed public, and what everyone takes from this article is that we need to change and raise taxes to the corporations, even I think this in reading this article, maybe that would not be so but in the time of presidential elections around the corner it certainly falls well in Obamas favor, I mean he says on TV one night that he will raise taxes on the corportaions and upper class.. then this comes out... what the press fails to report is the possible reasons and solutions.

See the issue with this article is you can’t trust it, the media coverage of this you just can’t trust!! Its like they take only what they wanted to hear from this article.

The actual GAO report http://www.gao.gov/new.items/d08957.pdf happens to be better prepared and actually states the following which supports my claimes on the reason why we are seeing these corporations do this to the US. This is what the report lists as a couple of reasons.

“Transfer prices are the prices related companies, such as parent and subsidiary, charge on intercompany transactions. By manipulating transfer prices, multinational companies can shift income from higher to lower tax jurisdictions, reducing the company’s overall tax liability.” Basically telling us corp. are shifting money to foreign sub-companies where they get favorable tax treatment

And

“Differences in company size, age, industry and other nontax factors…could explain some of the differences in reported tax liabilities.” hmmmm, they never elaborate..

But did you know that 50% of the businesses in the US today are S-corps, and many more are built as LLP’s and LLC’s? This report does fail to identify the population of companies it used, only separating large from not large, foreign from domestic; did it include S-corps, LLC’s or LLPs? Because each one of these business formats allows for pass through taxation, allowing the taxes to be paid by the individual owners, shareholders, or partners rather then the company. There are some very large holes that have not been explained here. Yet there are some very BIG companies that also file under these chapters. Did you know that Fidelity Investments is an LLC? http://www.iht.com/articles/2007/11/04/bloomberg/bxinvest.php 40000 Employees, 1.8 Trillion in assets managed, 13 billion in revenue in 2006, that’s pretty big. Earnst and Young is an LLP, with 135000 employees, $25 billion in revenues.… Why would big companies become a LLC or LLP? Because the corp. tax rate is too high! And in Fidelity’s case, Fidelity wanted to reduce what that was costing the customer, and it seems to reduce extra overhead costs.

In summery,

Corporations are paying taxes, but where or who is on the shit end? In this already high tax environment it’s the US tax system and the US people. I hope this explains my thoughts on this topic a little further, and if you don’t understand…

So would a higher corp. tax rate that calls for more IRS code, more oversight and laws (naturally creating a bigger government) be appropriate for an economy in a contraction phase? No. I believe it will not.

Now the thing to understand about my politics is I don’t support McCain, I don’t support Bush, and I don’t support Obama because in truth they are, it seems to me, either democrats or closet democrats. Each one of them has or will have out of control policies that will do nothing but make government bigger… But on the issue of Corp taxes, I do agree with McCain that a lower corp. tax rate would be the prudent and right way to manage our limping economy. My call is Obama is going to win this, but people expecting Obama to create change for the better are in for a shock, he is inexperienced, has bad economic policies (does have some other policies I like) and like all politicians he will say what ever it takes to win a vote… Hopefully he is smarter then I give him credit for... but only time will tell.