hmmm, let's see

what could the us fund for the common good with 1% of gdp?

wait a minute!

what are corporations doing with their 1% of gdp financial advantage?

The Wall Street Journal editorial page recently cited both the statutory marginal rate and the percentage of GDP collected, noting with apparent approval of Ireland's lower marginal rate and higher fraction of GDP in revenue. (You might think I would have permanently saved a reference to the WSJ supporting increased corporate tax revenues, but I don't have that link.) Their call seemed to be for a lower marginal rate on a wider base, which I think is a good idea in general; if elimination of special exemptions still leaves us with a tax base lower, as a portion of GDP, than other countries -- that corporate profits are simply a smaller portion of GDP in the US than elsewhere -- it would seem odd to think that corporate rates should therefore be jacked up to try to collect the same amount of revenue. In short, to the extent the tax bases are similarly constructed, their statistics seem to me to be the relevant ones. Yours are not.

"that corporate profits are simply a smaller portion of GDP in the US than elsewhere"

Yeah right!

You got some data to back this up? Or is yet another case of strong political emotion tainting the statement?

The WSJ article conceded the difference is due to US corporations receiving tax exemptions, credits, and greater freedom for financial magic.

There was no claim that the US corporations have a smaller share of the economy than other developed nations - it's quite obvious this isn't the case.

Of course, the WSJ fell back to its standard policy recommendations, criticizing proposals to cut exemptions. It instead pushed the idea to lower the overall tax rate, which they already established isn't the real rate anyway.

At some point somebody has to say that
IT DOES NOT MATTER HOW LOW CORPORATE TAX RATES ARE IF PEOPLE CAN'T AFFORD TO BUY WHAT THEY ARE MAKING!

As far as an economic stimulus package goes the best thing that could be done would be to provide UNIVERSAL HEALTH CARE TO EVERYONE. NOT HEALTH INSURANCE BUT HEALTH CARE.
It would benefit all from, individuals to large corporations and free up a lot of money that could be spent on other things.

Check out
The Middle Class Pac at
www.tmcpac.com

Francois, you seem to have misread my hypothetical as an assertion. It is mathematically necessary that, if country A has a lower rate than country B and collects a higher portion of its GDP on a comparably-defined tax base than country B, country A's tax base must be a larger portion of GDP. It would surprise me to learn that corporate profits in the United States were a significantly smaller portion of GDP than in much of Western Europe -- though maybe not Ireland -- but if that turned out to be the case, raising the marginal corporate tax rate would seem to me a very strange response to that.

The big, big caveat is the "comparably-defined tax base". A 1986-style reform, making corporate taxation simpler and more even-handed, enlarging the base, and reducing rates in a revenue-neutral or revenue-positive way, would be a step in a positive direction.

The NY Times has an editorial today

http://www.nytimes.com/2008/08/18/opinion/18mon2.html?ref=opinion

(referring to an earlier story) about how many corporations evade taxes entirely.

What I don't understand is why corporate income tax is necessary or advantageous at all - that is, why not tax all personal income at the same rate, or some rationally determined set of rates (rather than having special rates for dividends and capital gains to compensate for the double taxation)? I suppose that taxing corporations theoretically gives the government some control over them, but in practice large corporations have the resources to influence legislation on tax breaks in the first place and in the second place to devise strategies for evading any tax laws which are actually unfavorable to them. That is, big corporations tend to come out winners in real-world contests against the general interest.

Can someone tell me what economic objectives are served by taxing at the corporate rather than personal level?

skeptonomist:

Great question and perhaps Dean can comment.

I'm squarely in the liberal/progressive camp but I'm a big proponent of doing away with corporate taxes altogether.

Benefits: (i) won't distort economic decisions by corporations; (ii) no taxes means less incentive to pile on debt, which would lead to healthier balance sheets; (iii) more profits to either pass long on wages, pay dividends (which would be taxed) to shareholders, or reinvest in the Company (which would at the margin reduce reliance on external sources of capital; (iv) US would be more competitive globally.

Costs:

The lost revenue is the biggest. I believe corporate taxes account for ~$250B in annual revenue. Some of that would be recouped through taxes on the higher dividend payouts, but you would need to find a way to make it at least revenue neutral - partly through raising the top marginal tax rates.

In the end I think it's an idea with a lot of merit, based on the economics, but with no real political constituency. The only way to recover the lost income is to raise taxes on individuals and who wants to make that case?

Oh, yeah John McCain... I'm talking about what sane person?

The biggest reason for retaining the corporation income tax is because that is the only way to tax the income of individuals that is retained by the corporations as "undistributed corporate profits."

One proposal has been to tax all corporations like partnerships -- to force all individuals who own stock to declare as income everything their stock earns, not just the dividends corporations choose to distribute.

This creates measurement problems but worse, it would lead either to heavy taxation of people who own stock and have low incomes from other sources OR it would force a much higher rate of corporate dividend payouts, reducing the ability of corporations to accumulate capital using internal funds.

Some would say that they would just borrow from the general capital market but that would mean fast growing businesses without a proven tract record would have a higher time getting ahead.

There are a lot of dangers involved in abolishing the corporate income tax ...

Actually US statutory rates are among the highest in the world, see my chart 13 on page 26 of
http://www.unece.org/oes/disc_papers/ECE_DP_2008-2.pdf

Would undistributed corporate profits not be reflected in the stock price, and therefore captured by the capital gains tax?

Of course capital gains are taxed at a lower rate, but that's a different issue.

I don't see why taxing "undistributed corporate profits" is a reason to keep the tax.

Most companies pay out a certain % of profits to shareholders and use the rest to invest in the business and keep enough cash on hand to run smoothly. If you elminated the tax at the corporate level, companies would still be faced with the same set of circumstances - pay out the cash to be taxed at the individual level, or keep it in the business.

Ahhhh Dean and his magic denominator. You can make anything seem trivial with Dean Baker's patented magical GDP denominator, can't you? Did your Senator just spend $1 million dollars of pork on a Woodstock Museum? Don't worry, put $13 trillion dollars underneath it and watch it become magically insignificant. Worried that corporate tax rates in our country are too high? No worries, Dean will, for some reason, put total corporate taxes over GDP as if that is any way to measure marginal or even average corporate tax rates. What's that you say? President Bush just spent $50 million dollars on a solid gold cowboy hat made by former Nazis hiding away in Argentina? According to the Dean Baker's rule of sound fiscal policy thats just fine, because it's tiny when you look at it as a % of GDP.

Corporations distribute their profits in various ways: as dividends, as salaries and wages and ultimately as capital gains on stock. Currently all these things have different rates, and corporate CEO's and others with political power are always trying to change them to their benefit. There are lots of distortions already present, such as the tendency of executives who receive compensation in the form of stock options to boost the price temporarily before they cash in their golden parachutes.

Those who receive wages and fixed salaries (not stock options) generally have little political power, and tend to get the short end of the stick - it could be argued that management is always trying to push off the tax burden onto them.

OBAMA'S ECONOMICS ARE DANGEROUS !!!
Unemployment at 6.1% simply reinforces McCain's argument that if you raise taxes on businesses, they will have to cut back their work force in order to keep their doors open. In the short run, Obama's desire to raise taxes on businesses, and give the money to struggling Americans sounds good ... but, it panders to people's desire for hand outs and immediate gratification ... for, in the long run, this kind of bad judgement is like eating the goose that lays the golden eggs ... or, like eating your seed crop, instead of using the seeds to grow more crops. Raising the taxes on businesses is the best way to dramatically increase unemployment in America.

Sorry Howard, businesses don't cut the workforce because of taxes. The workforce is an expense, and that amount is subtracted from revenue in finding taxable profit. So as long as an employee brings in more revenue than it costs in compensation, the business profits more regardless of what tax rate those profits are taxed at.

Along those same lines, I don't get how people find that corporate taxes end up being paid by consumers or labor. Though, I can see labor being affected when companies move overseas... But other than that, taxes on profits should only affect those who collect the profits... shareholders.

中联石化不锈钢管销售公司,专业经营各种不锈钢管,不锈钢板,高镍合金不锈钢管等,是国内知名的不锈钢管材料供应商,公司不锈钢管不锈钢管生产技术力量雄厚,经验丰富,是广大不锈钢管消费者的首选

Worried that corporate tax rates in our country are too high? No worries, Dean will, for some reason, put total corporate taxes over GDP as if that is any way to measure marginal or even average corporate tax rates. What's that you say? President Bush just spent $50 million dollars on a solid gold cowboy hat made by former Nazis hiding away in Argentina?

jewelry wholesale

http://www.fantastic-replica.net

Very interesting to read.I enjoyed well while reading.I will recommend my friends to read this one for sure.

http://www.fantastic-replica.net

Just wanted to say great job with the blog, today is my first visit here and I’ve enjoyed reading your posts so far
cheap Uggs on sale

Your article is write very well, I like it very much ~
I wish you have a wonderful day!Thank you.
classic ugg boots

Along those same lines, I don't get how people find that corporate taxes end up being paid by consumers or labor. Though, I can see labor being affected when companies move overseas... But other than that, taxes on profits should only affect those who collect the profits... shareholders.