There is always a lot of discussion about tax rates, both personal and corporate, in the USA. This is especially true in a comparative way versus the rest of the world. Clearly, the power to tax is the power to destroy (I believe it was Jefferson who said it). But most people like the benefits that are funded by the taxation, a point people who want taxes lowered or even eliminated don't care to face. And we criticize as socialist the countries who have high personal tax rates, while businesses decry their rate as the highest in the world.
As with many things in the public forum, these are rhetorical exercises by people of differing opinions meant to bolster their positions. Ultimately, they are meant to inflame people to make decisions that are bad for them but in the interests of the manipulators behind them. So it has always been and so shall it be.
During the last major revisions to the tax code, I among many thought that the code would be simplified. It went the other way. And every special interest group imaginable freighted the law through their duly elected representatives (or duly supported with money during campaigning for office). Be that as it may, the rates themselves are not the issue as much as what people and companies pay. After all of the deductions and avoidances, what is paid is the effective tax rate. US corporations can not say that they have the highest effective tax rate in the world, or at least I would be surprised if they do except for specific cases. Companies have departments dedicated to the perfectly legal avoidance of taxes who operate by using the tax code to fullest advantage. Small companies cannot afford such staff, and thus cannot gain commensurate advantage.
For quite a while, people have been interested in a flat rate tax, which would not work that well because it is regressive - lower income people have a greater burden under such a system. I would propose a little thought experiment for personal and corporate taxes where the effective tax rate is calculated by some curve-fitting and that becomes the rate. Understand that there are different sorts of personal income: transfer payments (like Social Security), money income (wages) and capital gains. Wealthier people have more capital to have gains, and this rate is relatively low. According to recent economic thinking, this has contributed to the increased income gap where the wealthier become wealthier still, the poor poorer and the middle class is diminished. I understand that people want deductions for mortgage interest, more dependents, and companies for capital improvement, protection for strategic industries, and a bunch of other things. One can always mess with the curves, but the increase in simplicity is appealing for purposes of discussion.
This shifts the burden in businesses to making money rather than trying to retain money. They don't need to search for ways to avoid taxes because there wouldn't be any. Households are more responsible for themselves and should exhibit other prudent behavior. It has a lot of appealing features to it, even if there are jiggerings of the curves by interest groups. So let us consider no taxes on transfer payments, an effective rate curve for individuals as the rate, something similar for capital gains but higher than currently paid, and something similar for corporations. One can estimate the curves directly, or cumulatively using some sort of s-curve like a RIchards or Von Bertalanffy or similar, or use splines to hit the nodes along the distribution. There are many numerical methods. When I have a moment, I believe I will pull some data and try this.
As a side note, for companies fleeing US shores to avoid taxes, I would tax their remaining business here at a higher rate. Running away means they are not part of the fabric of American society, and to operate here is a privilege, not a right. They do not deserve the same access to our markets as if they were American companies. If they are disadvantaged in the process compared to American businesses, all the better.
P.S. This is my first blog, written with no notes, so forgive the stream-of-consciousness nature of it. Feel free to correct any factual misstatements and present opinions. Better still, pull the data, do the estimations and report on what you get.
As with many things in the public forum, these are rhetorical exercises by people of differing opinions meant to bolster their positions. Ultimately, they are meant to inflame people to make decisions that are bad for them but in the interests of the manipulators behind them. So it has always been and so shall it be.
During the last major revisions to the tax code, I among many thought that the code would be simplified. It went the other way. And every special interest group imaginable freighted the law through their duly elected representatives (or duly supported with money during campaigning for office). Be that as it may, the rates themselves are not the issue as much as what people and companies pay. After all of the deductions and avoidances, what is paid is the effective tax rate. US corporations can not say that they have the highest effective tax rate in the world, or at least I would be surprised if they do except for specific cases. Companies have departments dedicated to the perfectly legal avoidance of taxes who operate by using the tax code to fullest advantage. Small companies cannot afford such staff, and thus cannot gain commensurate advantage.
For quite a while, people have been interested in a flat rate tax, which would not work that well because it is regressive - lower income people have a greater burden under such a system. I would propose a little thought experiment for personal and corporate taxes where the effective tax rate is calculated by some curve-fitting and that becomes the rate. Understand that there are different sorts of personal income: transfer payments (like Social Security), money income (wages) and capital gains. Wealthier people have more capital to have gains, and this rate is relatively low. According to recent economic thinking, this has contributed to the increased income gap where the wealthier become wealthier still, the poor poorer and the middle class is diminished. I understand that people want deductions for mortgage interest, more dependents, and companies for capital improvement, protection for strategic industries, and a bunch of other things. One can always mess with the curves, but the increase in simplicity is appealing for purposes of discussion.
This shifts the burden in businesses to making money rather than trying to retain money. They don't need to search for ways to avoid taxes because there wouldn't be any. Households are more responsible for themselves and should exhibit other prudent behavior. It has a lot of appealing features to it, even if there are jiggerings of the curves by interest groups. So let us consider no taxes on transfer payments, an effective rate curve for individuals as the rate, something similar for capital gains but higher than currently paid, and something similar for corporations. One can estimate the curves directly, or cumulatively using some sort of s-curve like a RIchards or Von Bertalanffy or similar, or use splines to hit the nodes along the distribution. There are many numerical methods. When I have a moment, I believe I will pull some data and try this.
As a side note, for companies fleeing US shores to avoid taxes, I would tax their remaining business here at a higher rate. Running away means they are not part of the fabric of American society, and to operate here is a privilege, not a right. They do not deserve the same access to our markets as if they were American companies. If they are disadvantaged in the process compared to American businesses, all the better.
P.S. This is my first blog, written with no notes, so forgive the stream-of-consciousness nature of it. Feel free to correct any factual misstatements and present opinions. Better still, pull the data, do the estimations and report on what you get.
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