Last night, John McCain said, "The fact is that businesses in America today are paying the second highest tax rate of anywhere in the world."
Actually, Sen. McCain might want to check this out.
...though our tax laws include statutory rates that are fairly high (35% for corporations earning about $18 million or more annually) but generally in the same ballpark as those of other developed western nations, the actual tax rates paid by US corporations are extraordinarily low, around 6%. Remember the latest GAO report (reported elsewhere on ataxingmatter) that shows that two-thirds of US corporations pay no federal income tax...That's because the statutory rate of 35% is only on paper. Corporations engage in aggressive tax planning that cheats the system, and they take advantage of a bountiful number of lucrative loopholes built into the system under the four decades of Reagan-style corporate favoritism and deregulation...
[...]
...the US is actually a corporate tax haven, with the lowest effective corporate tax rates of almost all the countries that participate in the OECD.
Don't believe that? Than how about this:
Most U.S. and foreign corporations doing business in the United States avoid paying any federal income taxes, despite trillions of dollars worth of sales, a government study released on Tuesday said.The Government Accountability Office said 72 percent of all foreign corporations and about 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.
In other words, Sen. McCain is wrong again, spreading myths and misinformation to prove his point that...what, the richest corporations making record profits like ExxonMobil need MORE tax breaks, while the middle class gets squeezed? Yep, sure sounds like Bush/McCain "trickle down" economics to me. And we see where THAT'S gotten us. No thanks!
It would actually be a tax increase for those companies who manage to pay nothing, but they have gone around claiming that they are paying over 30% so they will have a tough time undoing the damage.
Also, it's time to punish those companies who setup shell corporations in Jamaica in some PO box in order to avoid paying taxes. That is un-American.
Seriously, does the yacht business really make that much of an impact on the economy.
How about the all the products sold at high end stores, that are mostly made somewhere else.
As for the employees of those high end stores, sorry but those don't employ as many people as Walmart, Target, etc.
As for the investment in small businesses, that's also a myth. Most small businesses are funded by the people who start them. The number of small businesses that have any investment from the upper income and wealthy is again, negligible.
Most of the growth that we have witnessed was fueled by the middle class funding their retirement accounts, not by the wealthy. That's where the capital came from, and that is why as the middle class has panicked and withdrawn their money in droves from 401k funds, the market has tanked. I don't see the market coming back until the middle class reinvests their money.
That's why Trickle-down is a wholesale lie and more appropriately referred to as TRICKLE-ON - scatological reference intended.
Maybe this comes from McCain's lack of private-sector business experience. After all, he slept his way to his wealth. He's even barred by pre-nupts from involvement in his wife's business.
The weighted average U.S. effective tax rate on the domestic income of large corporations with positive domestic income in 2004 was 25.2 percent, while the median effective tax rate for this population of corporations was 31.8 percent. However, as figure 1 shows, under these two summary measures there was considerable variation in effective tax rates across taxpayers. At one extreme, 32.9 percent of the taxpayers, accounting for 37.5 percent of income, had average effective tax rates of 10 percent or less; at the other extreme, 25.6 percent of the taxpayers, accounting for 14.8 percent of income, had effective tax rate over 50 percent. The average effective tax rates for the remainder of the taxpayers were fairly evenly distributed between these two extremes.
In a CBO report from some years back, they reported the overall average effective tax rate to be somewhere around 26%. The explanation I have seen as to why we have one of the highest statutory rates while have one of the lowest percentages corporate tax revenue versus GDP is the split between C-Corp and pass-throughs. This makes a lot of sense to me. Since individual income tax rates are lower at the highest marginal rate (factoring in the taxation of dividends), people get tax benefits from setting up as an S-Corp, LLP, LLC, other partnership or sole-proprietorship. And from an organization standpoint, we have much more money following through pass-through entities than other OECD countries.
On the very simplistic level, McCain's suggestion does not make sense. If you simply lower the statutory rate and that is all you do, tax revenue will go down holding economic growth constant. The people below the median effective tax rate are already paying less than 35%. So, the impact would be to reduce the tax burden on the half of C-Corps above the median. But depending on how low you set the C-Corp rate, you may have the impact of reversing the trend of increased pass-through income and people may start converting their businesses to C-Corps. In which case, you would have a reduction in individual income tax with an increase in corporate tax income; but the differing rates would still result in an overall decrease in tax revenue.
There are a lot of things we need to do to the corporate tax code. But I still think it would be easiest to scrap it all together and put in place a gross receipts tax for businesses. GRT is easy to comply with and easy to audit. And everyone would pay the same regardless of what they do (no lower rate for Pfizer, no higher rate for HP). If that wasn't an option, I would just get rid of tax accounting and have corps report their income according to US GAAP. The only thing you might have to do then is eliminate the tax preference for debt financing v. equity financing.
Last, all companies have to report cash payments for income taxes in their financial statement filings with the SEC. For Exxon, dividing their total cash payments for income taxes by total income, yields an effective tax rate of 37%.