To Tax or Not to Tax
While people have probably complained about taxes since someone levied the first tax, the debate seems to be getting more strident every day. I wonder if when Moses came down from the mountain there was an 11th Commandment, lost over time, that said “The Maximum Tax Rate shall be 10%.” When are taxes too high? What is the benchmark?
In the 1950s the U.S. had marginal income tax rates over 90%, though they did not apply to very many people. Today the maximum bracket is 35% and there are substantial numbers of citizens and Congressmen who say that this rate should never be increased.
On the corporate side, companies complain about how a 35% tax burden is higher than competitors face in other countries. Yet in the mid-1950s corporate taxes made up 30% of federal revenues while the number was 6.6% in 2009 (New York Times, 3/14/2011). How does this happen? G.E. is a great example. This same article says that in 2011 G.E. made $14.2 billion in profits of which $5.1 billion came from the United States. And what was its U.S. tax bill? Zero, none, and the company claimed a tax benefit of $3.2 billion.
GE reports a U.S. tax burden of 7.4%, about a third of that reported by the average multinational. GE has a large, very successful tax department and lobbies aggressively for tax breaks. It also keeps a lot of profits offshore and does not pay taxes on them until they come back home. (Companies are now lobbying for a reduced tax to repatriate their profits saying they will create jobs; the last time they received tax relief for foreign profits the money was used primarily for stock buybacks.)
If one has traveled extensively or lived abroad, the fact that in general the United States “works” is very obvious. It is still the easiest place in the world to start a new business; there is both venture capital and a well-developed infrastructure. This infrastructure includes the obvious like transportation, roads, railroads, air and shipping companies. But it also includes a banking and financial system that makes it easy to accept and make payments. And until the financial crisis of 2008, credit was easily available to small businesses and startups. Broadband access to the Internet is not as fast as in some other countries, but it is widely available. We have a strong legal system that provides patent and trade secret protection.
Yes there are regulations that companies must follow, many of which are designed to protect consumers. We want to buy food that we know is safe to eat; we want an air traffic control system that operates without flaws. We want companies to minimize the pollution they create and not poison the environment.
How do we pay for all of these services? While there are some fees such as those on air tickets, I believe that it is mostly through taxes, especially the income tax. Is it not a little disingenuous for companies to arrange to pay no taxes in the U.S.? They benefit greatly from the supportive business climate in this country.
If taxes are so distasteful to corporations, we should follow the lead of the airlines and introduce fees. Maybe what we need is a “participation fee” for being a part of our economy, a percentage of a company’s gross sales in the U.S. with no deductions or exemptions and no way for a firm to get out of paying that fee even if it is losing money. It becomes a cost of participating in and enjoying the benefits that the U.S. provides to business. No one likes taxes and fees, but it is important for the U.S. to keep on working, and that is not going to happen if companies feel they have no obligation to help finance the system that lets them succeed.