Businesses need more consumers — not tax breaksTo paraphrase the old saying about horses and water, you can give a corporation money, but you can’t make it spend.
By: Don Kusler, Duluth News Tribune
To paraphrase the old saying about horses and water, you can give a corporation money, but you can’t make it spend.
Thanks to record profits, essentially zero short-term borrowing costs and extremely low effective tax rates, U.S. companies are sitting on over a trillion dollars in cash. Further business tax breaks — while deepening our nation’s fiscal crisis — will do nothing to provide the real incentive companies need in order to invest in our economy: strong consumer demand.
Claims that federal business taxes are too high usually cite the nominal corporate tax rate of 35 percent. But what really matters is not the official rate, but how much companies actually pay, and by that measure corporate taxes already are very low.
A study released in 2011 by Citizens for Tax Justice of 280 Fortune 500 companies found that their average effective tax rate over the previous two years was just 17.3 percent, less than half the statuary rate.
More than one in 10 of these profitable companies paid no federal corporate taxes at all over that period, and some actually got money back from the government.
How do companies get away with paying less than the official rate? They use a variety of loopholes they’ve successfully lobbied for over the years — breaks they’ve always claimed would help them expand and create jobs.
But these special favors, which range from writing off the cost of equipment much faster than it actually wears out to playing accounting tricks with the stock options they use to pay their top executives, have only wound up enriching corporate treasuries, stockholders and CEO’s while doing nothing to boost the general economy.
Corporations also avoid U.S. taxation by sheltering cash in overseas tax havens. Through financial self-dealing, they concentrate their profits in low-tax or no-tax nations while keeping their deductions home.
The result of all this tax avoidance is that corporate tax collections as a percentage of the overall economy are at their lowest level since the end of World War II. In other words, far from being overtaxed, corporate America is failing to do its fair share in supporting the American government and society to which it owes so much of its success.
Instead of cutting already low effective rates, corporate tax reform should focus on ending incentives to send profits and jobs overseas and making sure all companies pay their fair share. Increased tax contributions by America’s profitable corporate citizens must be part of the solution to our federal budget crisis.
Greater public revenue from corporations and their wealthy stockholders could then be used to create what corporate America really requires in order to expand and prosper: a financially healthy middle class.
Don Kusler is executive director of Americans for Democratic Action. He can be reached at ADA, 1625 K Street NW, Suite 102, Washington, D.C. 20006