Upon entering 2012, many Americans thought of a New Year’s resolution and being optimistic, they also hoped that Congress did so as well. After constantly kicking a bucket filled with failed attempts, for example the 2011 super-committee, it is time for Congress to put forth real effort in fixing the U.S. debt problem and promote economic growth in 2012.
Looking back on 2011, one truth that should be highlighted is the commonality between the top 1% and the remaining 99%. Regardless of the tax bracket they fall into, the American people are frustrated with how slowly our weak economy is recovering, and hope to see a major boost in 2012 especially in the area of job growth. Being that the 2012 presidential election is a mere nine months away, presidential candidates are now focused on discussing the issues that are of social and economic significance such as income-tax, health care, jobs, etc. One pertinent issue which has had bipartisan support since 2011 is reducing and restructuring the corporate tax code.
Currently, the U.S. federal corporate tax rate is 35%, which is the highest corporate tax rate among industrialized and developing nations, and has hindered the United States from competing globally. Moreover, with the numerous amounts of legal tax loopholes which corporations are taking advantage of, many companies are getting away with not paying the entirety of what they owe in taxes, and in some cases, pay almost nothing at all. A 2008 Congressional Report indicated that nearly two-thirds of U.S. companies and 68% of foreign corporations pay no federal income tax. They accomplish this by using techniques such as industry subsidies, stock option packages, and moving assets overseas in order to avoid corporate taxation on profits. In a recent analysis of 265 profitable U.S. Fortune 500 corporations done by Citizens for Tax Justice, these corporations avoided paying a total of $42.7 billion in state corporate income taxes between 2008 and 2010. In addition, 68 of these corporations avoided paying no state income tax in at least one of the years from 2008 through 2010. Some of these corporations include Dupont, Pepco Holdings and Rockwell Collins, etc.
In 2011, Americans grew tired of these unfair practices and the Occupy Wall Street Movement protested that the big corporations need to pay their fair shares of taxes, which is correct. However, in spite of this, the real problem lies within the institutions and the incentives corporations get for exploiting the system, which results in federal revenue being lost. Additionally, it should be understood that most corporations are made up of middle and lower class employees, and not millionaires; however, when people think of corporate taxes, there is little to no consideration of the negative effects that inadequate tax revenue has on middle class wages, consumer prices and employment. Hence, it is evident that our political leaders need to become more conscious of the fact that the U.S. corporate tax does not make a distinction between rich and poor; it takes from everyone of potential wealth.
In hindsight, Congress needs to have as their focal point the distribution of the economic pie. In turn, corporations can help with such distribution and the expansion of this pie. Therefore, there needs to be major talk of reform; a reform that provides a lower tax rate which will open the door to global competition and put an end to all corporate tax loopholes. The idea is to have a reform that is very substantial in raising revenue and constitute fairness. A reform of reduction and restructuring of the corporate tax rate which will allow all parties to benefit; from members of the 1% to those of the 99%. This stand is neutral, for the simple fact that it lowers the corporate tax rate while expanding the base, which will lead to an increase in revenue by increasing economic growth.
If our political leaders fail to reduce the high U.S. corporate tax rate, corporation’s ability to hire will continue to be extremely limited, which in turn leads to more outsourcing and low returns on investment. As a result, we can only expect unemployment to remain high and the US to be unable to compete with industrialized and developing countries in terms of attraction and the retentions of major corporations.
With millions of unemployed Americans looking for work and the Occupy Wall Street movement protesting, our leaders should be welcoming to the idea of reforming corporate tax. The reality of the issue is that the government is taking a considerable piece of the economic pie, which is not helping the economy. In hoping that Congress did make a New Year’s resolution and with the 2012 Presidential Election around the corner, lowering corporate tax rate and eliminating the loopholes will be a notable first step in establishing economic growth.