Corporate Taxation: A Better Way

U. S. corporations have been presenting the argument for some time that the income tax rates in the United States are the highest in the world. Income tax rates in the mid to high thirty percent range would indeed be too high if corporations actually paid such rates. The fact is that many corporations pay little or no income tax at all. A Washington-based nonprofit group called “Citizens for Tax Justice” released a study which showed that 11 large corporations who reported $62 billion dollars in domestic profits paid a negative 3.5% tax rate in 20101.

In 2011, all of the United States corporations combined paid $181 billion dollars total in federal corporate income taxes2. Individual taxpayers paid an amount over six times that much that year equal to $1091 billion. The $181 billion paid by corporations’ amounts to about 1.2% of gross domestic product of approximately $15.2 trillion dollars. In simpler terms, corporations on average paid roughly 1.2% of the money they received in revenues in 2011.

We need to replace the corporate income tax with a corporate revenue tax of 4%. The reason for the revenue tax to be 4% rather than 1.2% is because the first two hundred thousand of revenue for every corporation would be tax free. This would help entrepreneurs who are starting out new businesses and enable smaller companies to expand. It’s high time that we did something for the little guy instead of mostly pouring out taxpayer dollars in corporate welfare to large corporations.

Every business, large as well as small, would not be taxed on the first two hundred thousand of revenue in order to substantially simplify the corporate tax code. Indeed, the new corporate tax code could be just one page using my tax plan.

Since they are paying little or no tax now, large corporations are likely to adamantly oppose my plan. But think about it. Is 4% such a large number? We the people understand how low 4% of any number is. Shoppers commonly see sales of 50% or more off. I bought a car on time with no interest related cost. My savings was 15%. Anyway, the 4% tax would not come out of a corporate executive’s pocket. Business taxes are expenses that are built into product pricing. That means that consumers ultimately pay corporate taxes anyway. So don’t let the complaining by corporations convince you that a 4% revenue tax is unreasonable.

An additional benefit of my corporate tax plan is that it would greatly reduce or eliminate the massive costs to businesses of hiring corporate tax avoidance specialists and lobbyists. Such costs have been estimated to be in the billions of dollars.

Large companies have long been arguing that our economy would function better if government would leave them alone and let the free enterprise system work. If they truly believe that, let them embrace my corporate tax plan and get off the public dole of corporate welfare. Ronald Reagan once said that companies should “learn to compete or get out of the business”. I agree.

1 — Information to referenced article was contributed by Andrew Zajac of Bloomberg News and Steve Raabe of The Denver Post, article “CEOs’ pay tops firms’ tax bills”, Arkansas Democrat Gazette, 9/1/2011, pg. 2D.

2 — Information from charts developed by the Congressional Budget Office and displayed in the Arkansas Democrat Gazette, 6/13/2012, pg. 2A.