Will Cutting Corporate Taxes Help Restore American Manufacturing Jobs?
One sensible proposal to restore America's lost manufacturing jobs is to cut corporate taxes. The U.S corporate tax is among the highest in the world. So, the argument goes, America's corporations are motivated to send manufacturing operations overseas. It's not just the higher wages that Americans demand, it's the taxes the companies pay.
The DesMoines Register reported a speech by Tom Pauken, a presidential hopeful (with the emphasis on "hope") who proposes cutting - indeed changing the nature of - corporate taxes. Pauken makes the additional point that corporations are not only socked with high tax rates, but they have to pay the 6.2% payroll tax (their contribution to your social security - you pay 6.2%, they pay 6.2%), which they don't have to pay foreign workers.
But then I saw this from Barry Ritholz's blog, The Big Picture:
Besides, they've already figured out how to reduce their taxes, if the above figures are accurate.
But wait. Is that what these numbers are telling us? Think about it. It could be that total federal revenue has increased faster than the amount of taxes corporations are paying (in the first instance). Maybe we individuals are just paying a lot more into the federal coffers, as a percentage of total federal revenue.
Or it could be that GDP has increased that much more since 1955 so that the percent of corporate taxes relative to GDP has gone down (in the second instance).
That's the problem with using only percentages here. You're not really sure exactly what it's telling you. You certainly can't conclude that corporate taxes have gone down, right?
But there is one thing that strikes me, and that's the third set of figure. Look how much more individual taxes and payroll taxes have increase as a percentage of federal revenues. And doesn't that ring true? We individuals have been paying a rising percent of our income to the government since 1955.
Remember that when you read those figures about how the lower income earners pay no taxes, it's mostly that they're not paying federal income tax. They're still paying FICA (social security and medicare taxes). And that's not insignificant when you're not making a lot to begin with. And, of course, the lower income earners don't have any "offshore" strategies they can use to reduce their taxes, do they?
So while I'm all for cutting taxes and regulations on businesses, my inclination is to think that this would have a greater impact on the small business person. The big guys may have already figured enough ways to avoid those taxes and regs. Plus they've got the bucks to pay lawyers and accountants to come up with schemes to avoid taxes. Most small businesses don't have the money to pay for that kind of advice.
The DesMoines Register reported a speech by Tom Pauken, a presidential hopeful (with the emphasis on "hope") who proposes cutting - indeed changing the nature of - corporate taxes. Pauken makes the additional point that corporations are not only socked with high tax rates, but they have to pay the 6.2% payroll tax (their contribution to your social security - you pay 6.2%, they pay 6.2%), which they don't have to pay foreign workers.
But then I saw this from Barry Ritholz's blog, The Big Picture:
Corporate Taxes as a Percentage of Federal RevenueAnd I ask the question: what would induce these companies to bring the jobs back to the U.S.? Would Pauken's proposal - or any other proposal to lower corporate taxes - cause companies to make more stuff here? They'd have to not only pay lower taxes on the stuff they made, but they'd have to pay taxes that were low enough to offset the payroll taxes too. Is that possible?
1955 . . . 27.3%
2010 . . . 8.9%
Corporate Taxes as a Percentage of GDP
1955 . . . 4.3%
2010 . . . 1.3%
Individual Income/Payrolls as a Percentage of Federal Revenue
1955 . . . 58.0%
2010 . . . 81.5%
Besides, they've already figured out how to reduce their taxes, if the above figures are accurate.
But wait. Is that what these numbers are telling us? Think about it. It could be that total federal revenue has increased faster than the amount of taxes corporations are paying (in the first instance). Maybe we individuals are just paying a lot more into the federal coffers, as a percentage of total federal revenue.
Or it could be that GDP has increased that much more since 1955 so that the percent of corporate taxes relative to GDP has gone down (in the second instance).
That's the problem with using only percentages here. You're not really sure exactly what it's telling you. You certainly can't conclude that corporate taxes have gone down, right?
But there is one thing that strikes me, and that's the third set of figure. Look how much more individual taxes and payroll taxes have increase as a percentage of federal revenues. And doesn't that ring true? We individuals have been paying a rising percent of our income to the government since 1955.
Remember that when you read those figures about how the lower income earners pay no taxes, it's mostly that they're not paying federal income tax. They're still paying FICA (social security and medicare taxes). And that's not insignificant when you're not making a lot to begin with. And, of course, the lower income earners don't have any "offshore" strategies they can use to reduce their taxes, do they?
So while I'm all for cutting taxes and regulations on businesses, my inclination is to think that this would have a greater impact on the small business person. The big guys may have already figured enough ways to avoid those taxes and regs. Plus they've got the bucks to pay lawyers and accountants to come up with schemes to avoid taxes. Most small businesses don't have the money to pay for that kind of advice.
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