Greg Mankiw: The Problem With the Corporate Tax

Greg Mankiw wants a cut in the corporate income tax:

The Problem With the Corporate Tax, by N. Gregory Mankiw, Economic Scene, NY Times: At this point in the presidential campaign, Senator John McCain is the candidate of ideas on issues of tax policy. Too many ideas, in fact. While some of his ideas are great, others are almost laughable. The one that has received the most attention recently — a gas-tax holiday — falls in the second category. ...

Lost in this hubbub, however, is a bigger idea that Mr. McCain and his economic team have put forward: a cut in the corporate tax rate, to 25 percent from 35 percent. It is perhaps the best simple recipe for promoting long-run growth in American living standards. ...

A cut in the corporate tax as Mr. McCain proposes would initially give a boost to after-tax profits and stock prices, but the results would not end there. A stronger stock market would lead to more capital investment. More investment would lead to greater productivity. Greater productivity would lead to higher wages for workers and lower prices for customers. Populist critics deride this train of logic as “trickle-down economics.” But it is more accurate to call it textbook economics. ...

Compared with other ways of funding the government, the corporate tax is particularly hard on economic growth. A C.B.O. report in 2005 concluded that the “distortions that the corporate income tax induces are large compared with the revenues that the tax generates.” Reducing these distortions would lead to better-paying jobs.

Of course, a corporate tax cut would affect the federal budget. ... Cutting the rate to 25 percent would seem to cost the Treasury about $100 billion a year.

Part of that revenue loss, however, would be recouped through other taxes. To the extent that shareholders would benefit, they would pay higher taxes on dividends, capital gains and withdrawals from their retirement accounts. To the extent that workers would benefit, they would pay higher payroll and income taxes. Increased economic growth would tend to raise tax revenue from all sources.

Some economists think that these effects are strong enough to make a corporate rate cut self-financing. A recent study by Alex Brill and Kevin A. Hassett of the American Enterprise Institute, looking at countries in the Organization for Economic Cooperation and Development, supports exactly that conclusion. But even if that turns out to be too optimistic, both theory and evidence make it reasonable to expect a significant discount from the sticker price. In the end, the net budgetary cost of the tax cut might be, say, $50 billion a year.

Senator McCain wants to fill that hole in the budget by restraining spending. If he can stop bloated legislation like the recent $300 billion farm bill from becoming law, more power to him.

But in case that quest proves quixotic, I have a back-up plan for him: increase the gasoline tax..., a gas-tax increase of about 40 cents a gallon could fund a corporate rate cut, fostering economic growth and reducing a variety of driving-related problems.

Indeed, if we increased the tax on gasoline to the level that many experts consider optimal, we could raise enough revenue to eliminate the corporate income tax. And the price at the pump would still be far lower in the United States than in much of Europe.

Don’t laugh. I’m serious.

I think a 50% recovery rate on tax revenues is far too optimistic, and I'm disappointed that Greg would even hint that the tax cut would be self-financing.

[He also discusses the distribution of the tax burden, but the 70% figure he cites as the amount of corporate taxes paid by labor relies upon an assumption of perfect capital mobility (and other assumptions), and he doesn't include how the burden of paying for the corporate tax cut would be distributed, i.e. how the gas tax or any other means of paying for the tax cut would be distributed across households. So the analysis of the tax burden is a bit incomplete and relies upon some fairly optimistic assumptions. I'm not opposed to either change, but the distributional consequences need more consideration. Predictions about the distributional consequences of policies that rely upon trickle down arguments have not been accurate in the past, and we should be wary when they are used to justify further cuts in taxes.]

From comments:

Corporate Tax Declines and U.S. Inequality, By John Irons, April 9, 2008: Over the last 60 years, the U.S. tax code has dramatically shifted away from corporate taxes and toward taxes on individuals, especially through the payroll tax, the financing backbone of Social Security and Medicare. In the 1950s, the corporate income tax brought in, on average, one of every four dollars in federal tax revenues. By the 2000s, however, it raised just one of every 10 tax dollars.

The shrinking share of corporate taxes was made up by an increase in payroll taxes to fund social insurance and retirement programs. Excise and other taxes—such as fuel taxes, phone taxes, etc.—shrank as well over the last 60 years, while the individual federal income tax rose slightly, from an average of 43% of total federal revenue in the 1950s to 46% in the 2000s.

This shift is important because of who pays these different taxes. The corporate income tax is significantly more progressive than other taxes. Those with incomes in the top 20% of the income distribution (those making more than about $86,000 a year in 2007) pay four times the average tax rate on corporate income than the middle 20% (those making between $27,000 and $48,000); while, for the payroll tax, those in the top 20% actually pay less than those in the middle as a share of their income.

This shift has been one of the factors leading to the drop in average federal tax rates for the very highest earners. Between 1960 and 2004, the average tax rate has fallen by about 14 percentage points (from 44.4% to 30.4%) for the top 1% of earners (those making more than $435,000 in 2007), while it has increased slightly (from 15.9% to 16.1%) for those in the middle 20%. 

Without offsets, further erosion of corporate tax revenues—either through lower statutory tax rates or through special preferences—would expand the already wide and growing income inequality in the United States.

Stephen Gordon makes the point that the countries with larger social insurance programs generally have lower corporate taxes than the U.S., but they also do much more redistribution after taxes are collected so that the net tax burden is fairly progressive even when they rely on fairly flat tax collection mechanisms such as a value-added tax. These redistribution programs are an important part of those systems.

Update: Brad DeLong comments on the article here.

Comments

[Compete]

Cutting the corporate rate may be necessary to compete internationally for the most productive corporations. Best to pay for the cuts by eliminating unproductive programs (bridges to nowhere, Iraq, farm subsidies). More total resources would be available for ordinary citizens this way.

Tax cuts don't generally increase tax receipts, but gov spending doesn't generally result in more total consumer products being available either. The exceptions are rare.

[btgraff]

"A stronger stock market would lead to more capital investment."

This in in itself quite a laughable remark. The stock market has little to do with raising new capital - stocks that are traded on an exchange are for ownership of capital already raised and spent by a corporation. even in the case of an IPO, usually that is not for new capital spending, but a means to let existing owners of a company get their profits out of a company either directly or by providing a liquid market. it will also rewrd activities that do not directly employ labour in the US - financial engieering and other things.

isn't it better to reduce payroll taxes by implementing a VAT?

[spencer]

Note at Angry Bear http://angrybear.blogspot.com/
the effective corporate tax rate is already 24.1%.

So is McCain proposing that we raise the corporate tax rate 0.9 percentage points?

Also note that the Hassett, American Enterprise Institute study referenced above was based on statutory tax rates rather then the effective tax rates. I for one am not quite sure of what to make of a study that is based on the assumption that firms pay a tax rate that no one actually pays.

[Stephen Gordon]

Mark, the arguments about incidence appear to be convincing in the view of the policy-makers of countries that finance the world's most generous social programs:

From Table II.1 of the OECD data base:

2007 statutory corporate tax rates:

US: 39.3
Canada: 36.1
Sweden: 28
Norway: 28
Finland: 26
Denmark: 25

[Stephen Gordon]

Oh, I missed spencer's point. The same relationship holds for effective and for marginal effective corporate tax rates.

[2slugbaits]

The effect that lowering the corporate tax rate would have on the capital stock is a lot more ambiguous than Mankiw lets on. Presumably the corporation will want to equate the after-tax marginal product of capital with the after-tax rental cost of capital. In other words, a corporation wants to ensure that the marginal increase in the capital stock is just equal to the after-tax cost of using that capital. Let's suppose that a firm borrows at 10% interest and the current tax rate is 35%. For simplicity we'll ignore inflation and depreciation. If the firm borrows at 10% in order to expand the capital stock, then the after tax marginal product of capital would be (10% x (100% - 35%)) = (10% x 65%) = 6.5%. But if the firm deducts the interest expense from its taxes, then the after-tax cost of capital is 10% but then subtract 35% of its interest payments, leaves 65% of its 10% capital cost...which leaves an after-tax cost of capital of 6.5%. Now lets lower the corporate tax rate to 25%. The after-tax profit goes up to 7.5%, but if interest is deducted the after-tax cost of capital has also increased to 7.5%. So the corporation is showing increased after-tax profits, which is good for shareholders. But has it in fact actually increased the capital stock? The answer is no because in both cases the amount of physical capital is set such that the before tax marginal product of capital is equal to the interest rate...which in both cases was 10%.

Lowering the corporate tax rate only affects the amount of physical capital investment if other things happen, such as changes in depreciation allowances, restrictions on deductibility of interest, tax credits, etc. But ceteris paribus, lowering the corporate tax rate does not necessarily increase capital stock.

[anne]

http://www.epi.org/printer.cfm?id=2947&content_type=1&nice_name=webfeatures_snapshots_20080409

April 9, 2008

Corporate Tax Declines and U.S. Inequality
By John Irons

Over the last 60 years, the U.S. tax code has dramatically shifted away from corporate taxes and toward taxes on individuals, especially through the payroll tax, the financing backbone of Social Security and Medicare. In the 1950s, the corporate income tax brought in, on average, one of every four dollars in federal tax revenues. By the 2000s, however, it raised just one of every 10 tax dollars.

The shrinking share of corporate taxes was made up by an increase in payroll taxes to fund social insurance and retirement programs. Excise and other taxes—such as fuel taxes, phone taxes, etc.—shrank as well over the last 60 years, while the individual federal income tax rose slightly, from an average of 43% of total federal revenue in the 1950s to 46% in the 2000s.

This shift is important because of who pays these different taxes. The corporate income tax is significantly more progressive than other taxes. Those with incomes in the top 20% of the income distribution (those making more than about $86,000 a year in 2007) pay four times the average tax rate on corporate income than the middle 20% (those making between $27,000 and $48,000); while, for the payroll tax, those in the top 20% actually pay less than those in the middle as a share of their income.

This shift has been one of the factors leading to the drop in average federal tax rates for the very highest earners. Between 1960 and 2004, the average tax rate has fallen by about 14 percentage points (from 44.4% to 30.4%) for the top 1% of earners (those making more than $435,000 in 2007), while it has increased slightly (from 15.9% to 16.1%) for those in the middle 20%.

Without offsets, further erosion of corporate tax revenues—either through lower statutory tax rates or through special preferences—would expand the already wide and growing income inequality in the United States.

[Fermi Pyle]

Regarding Mankiw's "Greater productivity would lead to higher wages for workers": Not historically. Yes, classic economics says the result is total income gains. But recent productivity gains have boosted the incomes of the top earners as the median stagnates. If all goes well by Greg's plan, we get more of the same.

[James Killus]

Is it really true that Mankiw is really an example of a reverse oracle, the one that is always wrong, so you can safely put a Not operator in there and get to good policy? It certainly seems that way sometime.

The enshrined idea that Mankiw depends upon is the notion that production is entirely a matter of Private Enterprise (and Private Enterprise is entirely Corporations), while governments can do nothing but redistribute wealth. Coincidentally, I just wrote a bit about that.

I'll also add that when Mergers and Acqusitions become the most important things that corporations do, then the train has already left the rails and predatory practices have become the order of the day.

[W]

Mankiw only discusses physical capital; he completely ignores the other very important form of capital: human capital. Instead of cutting the corporate tax rate, the government could spend money to boost human capital by promoting education and providing health care. Spending on physical capital is not the only way to boost productivity; A healthier and better educated labor force is more productive, providing the same benefits as physical capital.

When it comes to policy, prioritizing human over physical capital makes sense. A corporation could take its tax cut and invest the money in physical capital abroad. Given the lack of emigration from the US, improvements in human capital are bound to this country and productivity increases here, not abroad.

More importantly, improving human capital has additional benefits beyond productivity. A worker with better health care is not only more productive, but he also benefits directly from the value of the health care itself. Likewise, an educated worker gets the innate benefit of being an educated person, as well as the capability to produce more. An improvement in physical capital improves productivity and nothing else. A new machine produces more... that's it, at best people get to look at something shiny on the factory floor.

Finally, improvements to human capital don't have to trickle down. Workers own their productive capabilities, they don't own the machines they work on. Workers are in a better bargaining position to collect rent from human capital (which they control) than from physical capital (which the boss controls). True, Mankiw's "textbook economics" says wealth from productivity eventually trickles down, but I'd rather see the wealth start at the bottom.

[Lafayette]

Earth to BO ...

Article: A stronger stock market would lead to more capital investment. More investment would lead to greater productivity.

I must remind Mr. Mankiw, who has obviously spent little time in industry or commerce, that Business Managers do NOT make capital investments, in present conditions, based upon stock market valuations. He's ten years out of date on that notion. (NB: Stock market valuations help small entrepreneurial companies "with a good idea" to attract capital to expand, in areas with proven demand. Moving the economy out of generalized economic doldrums will take more than just the efforts of these mostly hi-tech Golden Boys.)

Corporate chieftains know full well what their order books demand, because they wrap those numbers up every Friday night. On Monday mornings, after a weekend of relaxing golf with their CEO pals, they make decisions regarding the need for either reduction, expansion or maintenance of production levels as a function of order-book tendencies. Their pals will have had input that corroborates their own instincts. (You thought directing a company required the ability to read out of a crystal ball? Think again, learn to golf.)

At the very most, interest rates could affect their decision to expand production, since it directly folds into the cost and therefore the ROI-consideration. For the moment, with demand so weak, companies are meeting Demand with existing production, and management is cutting overhead costs -- wherever possible without compromising sales -- to make quarterly figures look as good as possible.

Given the present economic downturn, it seems better to undertake any measure that increases disposable income. (Like a gas-holiday!?! Well, maybe not.) When consumers retrench spending, they will only break out and resume spending when either/all of three or four factors provoke them to do so:
* First, a decrease in taxation, or a rebate on taxes.
* Second, an horizon that does not indicate any menace to their livelihood, meaning typically a decrease in the rate of unemployment.
* Third, an increase in compensation (concurrent with a decrease in personal debt).
* Fourth, a speculative increase in net personal wealth.

So, if you were not lead-head (whose horizon is 8 months before he goes back into his armadillo hole in Crawford), but the new leader of the Free World, what would YOU do?

Wait for 3 and 4 above to happen? The wait will be long 'n boring.

Number 2 above will not happen unless action is taken, since consumer expectations become a dependent variable ... depending upon the economic policy action taken.

All of which gets us back to number 1 -- a tax cut. Perhaps coupled with a Keynesian expansion of Federal spending (presuming a shift in budgets can be made from DoD to elsewhere).

But, both of these "good ideas" will occasion severe impact upon total Federal disposable income, meaning that provided by either tax revenues or Federal borrowing. Tax revenues are plateaued since the economy is not expanding. Borrowing is up against a wall and will only weaken the dollar, thereby increasing energy costs. The budget deficit is already chronic and impacts dollar valuations. The US has painted itself into a tight corner.

What is the next PotUS gonna do?

Earth to BO, earth to BO ... come in BO ... ;^)

[Lafayette]

Gross Injustice

W: An improvement in physical capital improves productivity and nothing else. A new machine produces more... that's it, at best people get to look at something shiny on the factory floor.

Interesting juxtaposition, these two. They are not necessarily in competition. In competition are robotic machines and (more or less) un- or semi-skilled workers, at least in Western economies. They are collaborative when the machines assist human intelligence in the performance of work, i.e., the well-known Information Worker who is becoming more the standard of developed economies.

You are nonetheless right to compare the return on capital versus the return on labor input -- because they are important. Important not solely because they are significantly different in value, the former being much larger historically (in post-war years) than the latter; but because all output of goods or services must be to meet consumer demand. Consumer demand is generated by personal disposable income, itself fed by compensation (meaning return to labor, for the most of us).

It is a closed circle, that is, Demand (for goods/services) stimulates manufacturing, which provides both labor and investment, both of which result in not only goods/services but their returns (one to capital, the other to labor) -- which determine, in turn, consumer disposable income (after taxes) on the one hand and corporate profits on the other.

The Western economic model has traditionally centered upon the above form of remuneration, since return on profit (as well as rents) as a means of subsistence was, until recently, the preserve of a specific class of society (namely, the owner class). However, both rents and profit sharing are also enjoyed today by a larger part of the population who benefit also by the contribution of both profit/rents to net personal income by means of equity or ownership rents.

My first point is this: The distinction between returns on profit and labor no longer determine individually the net disposable income, since both do nowadays. In the Modern Economy, returns on capital, now contribute also to disposable income (by means of dividends or equity appreciation), and therefore Consumer Demand – which remains the alpha and omega of modern economics. (Though I have qualms about how that demand manifests itself, in specific terms, the fact should be inescapable to all that Consumers inevitably determine the course of how economies function ).

My second point would be this: If this is the case, the remuneration model needs ... uh, remodeling. That is, Comp & Ben can no longer suffice alone. Workers should share directly in the return on profits, not indirectly by means of stock purchases or options. There is no viable, sensible or rational alternative. Both principal inputs, Investment and Labor, should share the rewards of profit.

The logic is clear: Investment funding (whether from earned profits or debt) belong to the company and to the company's owners. All workers in the company, whether Top Management or floor-sweepers, should therefore be owners in a publicly quoted company -- by means of stock ownership, either in the form of remuneration, or purchase or inducement stock-options.

Not all workers will have the same level of ownership – since such is decided by the contribution that each makes to a company's operations. Management and third-parties, however, should not be the sole owners, though, indeed, they may be the majority owners.

Furthermore, by means of ownership, access to the levers of power at the Board level is afforded to all workers in a company. They should also share the overseer seats at the oval table.

If this needs to be accomplished by legislation, then so be it. But, it remains a gross injustice for as long as it is not done.

Unfairness in the business process creates the Economic Inequity that is rotting our social fabric. Whilst the majority toil, some to subsist and others to earn a decent living, a comparative minority regale themselves with excessive wealth.

Somewhat less wealth for the all-too-wealthy and a bit more for the not-at-all wealthy enlarges the economic pie that serves us all.

[paine]

greg mephisto
has had better innings

this is pretty close to a pure "phone in "
on the dynamic scoring front
and the burst of growth front

and most growth gets paid out in higher wages front etc etc

this wonderland set of logic traps
catch fewer and fewer of us boverats these days

i like his ending o'henry twist though

a beelezabub swap

accept a far far higher federal gas tax
in exchange for striking out
the present
federal corporate income tax

forms a nice green green dual class alliance
between the rent seeking caps
and the merit class fee seekers
by appealing to the do good in all meritoids
oh you little imp greg

[bill]

Tax corporations like we tax REIT's. If the corps distribute their profits as dividends, then their tax rate is zero. Then the owners of the corporations would get to pay their tax every year. If the shareholder is the IRA of a blue collar worker, then the tax is deferred. If it is a millionaire, the tax rate would be 35% or so. That's fair.

[Richard A.]

The government could make up for lost revenues from a corporate tax rate tax cut with a value added tax. Indeed, a VAT could replace the corporate tax altogether.

[zinc]

The lower tax treatment for passive income and capital gains should immediately be repealed. There is no credible reason, other than fantasy, for labor to be taxed at a higher rate than capital. Mankiw repeats the fantasy as the basis of his logic as does his partner in fantasy, Glenny Hubbard. I have noticed the rise in VAT fantasy proponents, and their absurd assertions, lately.

To everything there is a season and it is clear that the American agenda needs to be about restoring middle class wealth, reversing the credit bubble and encouraging savings, balancing the budget, and zeroing out trade deficits on a country by country basis.

At the end of the day, the requirements for a financially healthy country are similiar to the financial health of an individual. Common sense is indispensable and the bill of goods academia and the republicans have sold this country belies common sense. Not to mention the outcomes.

[mrrunangun]

Archer Daniels Midland not only gets a good corporate tax rate, it gets subsidies to grow corn and in the current farm bill has a price floor of $6, the going rate currently and also the all-time high. Wouldn't you like to get a floor like that in your all-time best earning year? Then ADM gets another set of subsidies for converting the corn into ethanol, courtesy again of the American taxpaying citizens and the other less well connected corporations.

[a]

"...a boost to after-tax profits and stock prices, but the results would not end there. A stronger stock market would lead to more capital investment. More investment would lead to greater productivity. Greater productivity would lead to higher wages for workers and lower prices for customers. Populist critics deride this train of logic as “trickle-down economics.” But it is more accurate to call it textbook economics. ..."

So the fact that after-tax profits and stock prices are *already* high but that workers haven't enjoyed higher wages means what exactly? That we shouldn't read textbook economics? Or maybe I'm misunderstanding whom "workers" refers to? Maybe it's CEOs?

[Lafayette]

RA: Indeed, a VAT could replace the corporate tax altogether.

Umm, not entirely.

It provides revenues of around 60% of the total tax take in France and, by extrapolation, I suspect in most Euroepean countries.

Income tax provides most of the rest. Corporate tax rates are higher in the US than in most European countries (almost40% versus between 20 and 30% for Europe). Their concomitant contribution to total tax take is less in Europe and more in the US.

Still, taxes on incomes and profits as a percentage of GDP are roughly the same in both the EU and the US; both between 11 and 12%. (See the numbers here. Click on "Table A".)

A uniform VAT would have to be shared with the states, so I doubt it would provide sufficient tax revenues to the Federal government. It certainly could not obviate individual income taxes.

But, here's the rub: By taxing higher incomes further, that is, back to were they were before the Trickle Down Magician axed them; then both a VAT and higher marginal income taxes could produce more tax revenue in the US.

In which case, the debt could be drawn down AND a decent federally funded Health Care system launched, with enough left over for free Tertiary Education at funded state schools. Jess dreamin' ...

NB: And, goodness, it might even do wonders for America's shameful Gini coefficient.

[swells]

It would be better to cut the corporate tax rate to zero and flow all the income to holders of the stock (even if the income is retained for business purposes, it should be accounted for as if it were distributed). Then that income would be taxed as income to the owners of the stock.

This way, businesses would be treated the same as individuals except there wouldn't be any retirement accounts for corporations.

Why should corporations be treated any differently than partnerships or sole proprietorships for tax purposes? I can't see any good reasons to do so.

[reason]

swells...
In many ways I agree with you, rationality in tax systems is not we have. But pragmatically, the law of second best still holds. Without a lot of other changes such a partial move towards rationality may make things worse. Nothing short of a complete overhaul of the entire tax/transfer payment should be considered that makes the system even less equitable.

[reason]

I've been pushing that Stephen Gordon's view be given more credence here. I do not doubt that he belongs on the progressive side politically, even if his policy positions are considered heretical by many here.

[Lafayette]

sw: Why should corporations be treated any differently than partnerships or sole proprietorships for tax purposes?

First of all, it is easier to collect the tax from them.

Secondly, amortization for investment is tax deductible thereby giving companies incentives to invest. The official corporate tax rate is a wee bit less than 40%. I'll bet, however, it is not the effective rate.

Thirdly, if there is a different tax for earned and unearned income, then, yes, the idea is sound. If earned and unearned income are taxed equally, people have an incentive to stop work and just play the market. I suggest that there is enough of that going on, that is, people making a livelihood on the market. It's already got us into two messes (the dot.com and subprime).

Any tax reformation must be, at the very least, revenue neutral because of the National Debt. Meaning debt maintenance payments, to avoid defaulting, are not discretionary expenses but obligatory. Otherwise, everyone will abandon the dollar and the country REALLY goes down the tubes. So, any reduction in total net revenues must necessarily reduce also the budget. Is that a good thing?

McCain would think so. But the Repubs haven't a clue, so fixated are they that becoming a millionaire is a birthright.

If we raise marginal rates at the upper level, I'd like to see what the IRS predicts would be the additional tax revenue flow. I really, truly would like to see that calculation.

I'll bet it would take the pressure off a lot of the middle-class who were then asked to assume the burden. Institute a threshold income tax rate at some level just above the minimum wage, reduce middle-class incomes and use the resulting increase in net revenues on reducing the National Debt.

As well as providing the means for some well-deserved Human Capital investments to prepare people for the 21st century -- cuz we aint ready yet. This effort is not one shot, but must be ongoing from generation to generation. One, perhaps two generations are already hopelessly lost. They wont recover and are definitively incarcerated in a low-class menial-work existence, I am sorry to say.

French income taxes are part of their Human Capital investment scheme, meaning that families with children have significant deductions, specifically for their educational needs. So much so, that only one French family in two pays any income tax.

The VAT is a very efficient tax to collect, far more so than income tax. It is regressive, yes, which is why there is so much investment in human resources, as a means of giving back to the lower social strata much of which is taken from the middle and upper classes.

This is the famed French "Social Solidarity Pact", of which the French are indeed proud and with which few quibble. It provides for a damn fine truly universal HC-system and though a mediocre educational system, at least it is totally free (even tertiary education).

[swells]

Lafayette, it is interesting to see you holding firm for revenue neutrality when it comes to rationalizing taxation. Do you take the same position when advocating spending on entitlement programs?

Personally, I find 6.5 billion inhabitants of planet earth to be enough. I hardly want to pay more taxes to encourage irresponsible breeding. Wouldn't it be better if we penalize people for having children in excess of the rate of replacement?

[Lafayette]

swells: I hardly want to pay more taxes to encourage irresponsible breeding.

Yes, I am sure you don't.

Sign up now for the first moon colony.

[Richard Sims]

John McCain seldom speaks for more than a couple of minutes without mentioning the need to cut corporate taxes. His web site says, “John McCain believes the taxes we impose on American companies should be no higher than the average rate our major trading partners impose on theirs. We currently have the second-highest combined corporate-tax rate in the industrialized world, and it is driving many businesses and the jobs they create overseas.” So, Mr. McCain will be delighted to learn that, according to the World Bank, his wish for “taxes no higher than the average of our major trading partners” has been granted.
According to a recent international survey of corporate taxes (Doing Business: OECD Business Taxes as a Percent of Profits, 2008), the World Bank finds the businesses located in the U.S. are taxed at exactly at the average rate of our major industrialized trading partners. Taking combined taxes paid by businesses at the federal, state, and local level into consideration, the combined tax rate for businesses in the U.S. is 46.2%. The average rate for 24 industrialized nations (the member nations of the OECD) studied in the report is an identical 46.2%. Eleven nations had higher combined taxes, twelve nations had lower. Anyway you cut it, total U.S. business taxes are right in the middle of those of these industrialized nations.
McCain’s “second-highest” statistic apparently comes from having looked only at one tax, the corporate profit tax. The problem with this simplistic approach to international comparisons is pointed out by John Whiting, a tax partner at PricewaterhouseCoopers, the principle consultant to the World Bank study, “There is room for confusion and misinterpretation over a company’s tax bill, particularly if you just look at the corporation tax. Businesses face a huge array of taxes over and above the tax on their profits.” In other words, comparing nations’ business taxes by looking only at profits taxes will leave you mislead and confused.
To illustrate this point, this study found that the US tax rate on corporate profits is, indeed, comparatively high—5th highest among the 24 industrial nations. But for other major business taxes, such as those on labor and social contributions, the U.S. is 3rd lowest as a percent of profits. In many nations, business taxes on employment and social contributions are much higher than their outlays for profit taxes. For example, in the U.S. taxes on labor and social contribution taxes, which here are comprised mainly of the employers share of social security and state unemployment contributions, are 9.6% of profits. The average for such taxes in rest of the industrialized world is 23.4%. The labor and social contribution tax rates are over 30% of profits in seven nations, and in two of those nations, France and Belgium, the rates are over 50%. It is clearly misleading and confusing to ignore these taxes. Not to mention, plainly wrong.

[me]

What the rate is and what they actually pay is two different things.

"Many large multinational corporations pay no taxes at all. According to the GAO more than 60% of U.S. controlled corporations with at least $250 million in assets (representing 93 percent of all corporate assets reported to the IRS) reported no federal tax liability each year between 1996 and 2000, while the economy boomed and corporate profits soared. 71% of foreign-based firms operating in the U.S. during that same period paid no U.S. income taxes. According to Citizens for Tax Justice, 82 of 275 top U.S. corporations paid zero taxes between 2001 and 2003, although they earned $102 billion in pre-tax profits. 46 companies with a combined profit of $42.6 billion paid no federal income taxes in 2003 alone. Instead they received rebates totaling $5.4 billion."

http://www.corporatepolicy.org/topics/Taxhavens.htm