INCREASING THE CORPORATE INCOME TAX RATE MAKES NO SENSE
Congresswoman Carol Miller (R-WV) penned an op-ed in Fortune on how a higher corporate rate would hurt Americans by driving up prices and reducing wages, as well as affecting America’s standing in the global economy.
Here are some of her comments:
- The Democratic presidential nominee, Vice President Kamala Harris, has argued that increasing the corporate rate to 28% 'is a fiscally responsible way to put money back in the pockets of working people and ensure billionaires and big corporations pay their fair share.'
- However, the clear economic truth is the opposite: Raising taxes on corporations will raise prices for consumers—and inflation will spike yet again.
- The Tax Cuts and Jobs Act (TCJA) that passed under President Donald Trump in 2017 lowered the corporate tax rate from 35% to 21%.
- In 2018, 263,000 manufacturing jobs were created and wages increased by 3%, according to a National Association of Manufacturers analysis of Bureau of Labor Statistics data.
- Many economists have credited the TCJA for America’s continued outperformance relative to most of the world’s advanced economies.
- Multiple studies show that corporate tax increases are directly passed on to consumers in the form of higher prices.
- A higher rate will also make American exports more expensive and companies less competitive in the global market. The result will be slower economic growth, fewer jobs, and less innovation.
- A lower corporate tax rate keeps costs down, leading to lower prices for consumers and more investment in their workers. The reality is that if the corporate rate goes up, the burden will fall on consumers, employees, and retirees.
- As a small business owner, if I suddenly must pay more in taxes, I either have to cut back on investments into the business that create more jobs or pass increased costs onto my customers. This would happen to businesses around the country and would slow economic growth in the U.S. to a grinding halt.
- While some may argue that the federal government is leaving money on the table by maintaining or lowering the corporate rate, the opposite is true. The TCJA grew the American economy to the extent that the significantly lower corporate tax rate was offset by increased tax collections.
- The U.S. government doesn’t have a revenue problem, it has a spending problem. Thanks to the TCJA, the 21% corporate rate has kept business taxes low, which softened the blow from the Democrats’ ill-advised (and utterly misnamed) Inflation Reduction Act.
- Without the TCJA, inflation would have been much higher. This is why even Democrats refused to hike the rate or repeal the TCJA when they had full control of the House of Representatives, Senate, and White House.
CONCLUSION
Congresswoman Miller exposes the urban myth promoted by many in D.C. that taxing corporations taps a new source of funds at no cost to Americans.
A for-profit corporation is a legal entity, registered with a state, that is owned by people who own its shares. A non-profit is owned by the public and controlled by a board of directors but has no shareholders.
Almost all corporations are private—meaning that their shares are not available for purchase on a stock exchange. Almost all of these are “pass-through” entities where the corporations themselves don’t pay tax, but the company’s income is reported on the owner’s tax return and the owner pays the income tax on that income.
Only 4000 corporations of the 9.1 million corporations in the U.S. are public and have their shares listed for sale on a stock exchange.
An American with an IRA, 401K retirement plan or pension almost certainly owns shares in one or more of these public corporations through their retirement plan or in their personal investment portfolio.
A public corporation’s earnings are a big factor in determining what that corporation’s total value is. The value of a public corporation’s shares is calculated as a multiple of its earnings. The amount of the multiple varies by the type of public corporation.
As an example, if a public corporation earned net profit of $10,000,000 and has a “multiple” of 5, then the corporation is said to be worth $50,000,000. If there were 100,000 shareholders, then each share would be valued at $50,000,000 divided by 100,000 or $500 per share.
It is simple math. In the above example, every dollar of additional corporate tax that has to come out of the corporation’s profits lowers the corporation’s overall value by five dollars. Since corporate management is often judged by how well they maintain the company’s overall value, the people who run corporations work to find other ways to offset increased taxes.
Higher prices are the primary way corporations offset higher taxes. But oftentimes, market conditions don’t allow them to offset the entire tax increase with higher prices. In those cases, the corporation will look to cut costs. Often that means laying people off, not giving raises to employees and cutting dividends to shareholders.
Some politicians declare that a corporation has a moral duty to pay higher taxes out of their profits. But the economic reality is that paying higher taxes out of their profits is the last thing we want a corporation to do. When a corporation is taxed more, they raise the money to pay the taxes from consumers, their employees or their shareholders.
The obvious point not addressed by Congresswoman Miller is if a 21% corporate income tax rate creates more economic activity and benefits, then how much better will a 0% rate be?
If more foreign based companies are moving to the U.S. because the rate was reduced to 21%, how many more will come if the rate is 0%?
If you not only reduce the corporate income tax rate to 0% and eliminate corporations paying Social Security taxes, as the FAIRtax does, then the competitive pressures in a free market economy will ensure that the lower costs companies enjoy will get passed on to consumers in the form of lower prices.
In addition to the above benefits, the FAIRtax provides a number of other great benefits.
The FAIRtax:
Congresswoman Miller exposes the urban myth promoted by many in D.C. that taxing corporations taps a new source of funds at no cost to Americans.
A for-profit corporation is a legal entity, registered with a state, that is owned by people who own its shares. A non-profit is owned by the public and controlled by a board of directors but has no shareholders.
Almost all corporations are private—meaning that their shares are not available for purchase on a stock exchange. Almost all of these are “pass-through” entities where the corporations themselves don’t pay tax, but the company’s income is reported on the owner’s tax return and the owner pays the income tax on that income.
Only 4000 corporations of the 9.1 million corporations in the U.S. are public and have their shares listed for sale on a stock exchange.
An American with an IRA, 401K retirement plan or pension almost certainly owns shares in one or more of these public corporations through their retirement plan or in their personal investment portfolio.
A public corporation’s earnings are a big factor in determining what that corporation’s total value is. The value of a public corporation’s shares is calculated as a multiple of its earnings. The amount of the multiple varies by the type of public corporation.
As an example, if a public corporation earned net profit of $10,000,000 and has a “multiple” of 5, then the corporation is said to be worth $50,000,000. If there were 100,000 shareholders, then each share would be valued at $50,000,000 divided by 100,000 or $500 per share.
It is simple math. In the above example, every dollar of additional corporate tax that has to come out of the corporation’s profits lowers the corporation’s overall value by five dollars. Since corporate management is often judged by how well they maintain the company’s overall value, the people who run corporations work to find other ways to offset increased taxes.
Higher prices are the primary way corporations offset higher taxes. But oftentimes, market conditions don’t allow them to offset the entire tax increase with higher prices. In those cases, the corporation will look to cut costs. Often that means laying people off, not giving raises to employees and cutting dividends to shareholders.
Some politicians declare that a corporation has a moral duty to pay higher taxes out of their profits. But the economic reality is that paying higher taxes out of their profits is the last thing we want a corporation to do. When a corporation is taxed more, they raise the money to pay the taxes from consumers, their employees or their shareholders.
The obvious point not addressed by Congresswoman Miller is if a 21% corporate income tax rate creates more economic activity and benefits, then how much better will a 0% rate be?
If more foreign based companies are moving to the U.S. because the rate was reduced to 21%, how many more will come if the rate is 0%?
If you not only reduce the corporate income tax rate to 0% and eliminate corporations paying Social Security taxes, as the FAIRtax does, then the competitive pressures in a free market economy will ensure that the lower costs companies enjoy will get passed on to consumers in the form of lower prices.
In addition to the above benefits, the FAIRtax provides a number of other great benefits.
The FAIRtax:
- Is so simple everyone can understand and comply with it without having to hire expensive professional help.
- Shows the true cost of the federal government on every retail receipt so all of us can understand how much we are paying in federal taxes and determine if the benefits that we are receiving are worth the cost.
- Helps U.S. companies compete with foreign competitors and not be required to move overseas to stay in business.
- Keeps jobs in the U.S. rather than exporting them to other countries.
- Permanently establishes the solvency of Social Security and Medicare.
- Eliminates special treatment for any group of taxpayers.
- Benefits lower income groups more than the present income/payroll tax system and is FAIR.
- Eliminates the need to file tax returns.
- Eliminates the need for the IRS!
- Allows each of us, not the Elites and their minions, to determine the amount of federal tax we pay.
- IS THE LARGEST TRANSFER OF POWER FROM D.C. TO THE PEOPLE SINCE THE CONSTITUTION WAS ADOPTED.
The American people will overwhelmingly support the FAIRtax if they are given the chance and all of us will benefit.
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.
THE SOLUTION—PASS THE FAIRTAX!
Why would D.C. pass the FAIRtax and give up this almost unlimited source of donations? The only way that they will is if the rest of us demand it!
Isn’t it time to end this ludicrous tax collection system and the IRS?
There is going to be a vote on the FAIRtax in the House of Representatives.
We now have the opportunity to force all Members of the House to show where they stand. They can:
- Vote for the present income/payroll tax system or for the FAIRtax.
- Support the corrupt income tax and the IRS or eliminate it. It can’t be any simpler than that.
- Hide the true cost of their government or pass the FAIRtax and show everyone the true cost of government on each retail receipt.
- Support the largest transfer of power from government to the people, the FAIRtax, or not.
If Members think that the FAIRtax needs to be amended to address a problem, then they can propose the change. Don’t reject the entire bill because it has a perceived “flaw” that can be addressed and, if it is a real “flaw”, corrected in the final bill.
HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES
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Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.