Debt limit, job creation rhetoric off the mark

More pragmatic points on whether some corporate tax increase could be included as part of a package that raises the national debt limit while cutting the gaping deficit:

  • Financial columnist Tom Saler astutely points out in the Sunday Milwaukee Journal Sentinel that corporate taxes account for only 1.8% of GDP, the lowest of the 34 countries in the Organization for Economic Cooperation and Development. He also cited the current level of total federal taxes at 14.9% of GDP, far below the 18.5% average since World War II.
  • Saler omits the point that U.S. corporations pay income taxes at two levels, federal and state in most states. Wisconsin’s tax rate is 7.9%, no small number.
  • He stops short of explaining why that could be so when the rate for corporate tax of 35% in the U.S. is among the highest. The answer, of course, is that big corporations use lawyers, accountants and foreign locations to avoid the high U.S. rates. This makes the case for an alternative minimum tax for large corporations. The big companies need to pay their fair share. Smaller companies already do.
  • The GOP says it doesn’t want such loopholes closed because it will hurt job creation. The cold, hard facts, revealed in a 2009 analysis by the Kauffman Foundation, are that big companies are job reducers, not job creators. Entrepreneurs create all the net new jobs. So the job creation rhetoric is off the mark in the national debt limit debate. It is just that, rhetoric.
  • The multi-national corporations must be respected, though, because they are at the top of the supply chains, into which the smaller firms sell their goods and services.
  • Entrepreneurs don’t care much about taxes. As they launch their ventures, they don’t have top lines or taxable bottom lines. They like tax credits given to angel and venture investors, because it helps them raise capital. They like capital gains breaks for the same reason. But they don’t worry much about income tax levels, corporate or personal, at least until they start making a profit and start paying themselves decent salaries.


The long and short of all of the above is that there room on the big corporation side for additional taxes at the federal level. Instead of plugging various loopholes, make it simple with a minimum tax rate.

The big corporations ought to view such a tax as patriotic.

One compromise would some kind of surtax to cover the costs of our two wars, which have become bipartisan wars. The surtax would sunset in, say, three years. The Republicans would have to compromise on the higher tax, and President Obama would have to agree to the sunset.

At the end of this debt limit showdown, there will have to be some kind of such compromise.



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