The Benefits of Taxation

By: Erik Barzdukas

As many are aware, there has long been a push by conservatives to lower the “burdensome” tax rates on job creating corporations. Their premise is that the economy is an animal that just needs to be “unchained” through deregulation in order to provide prosperity for all. The problem with this overly simplistic reasoning is that it places an inflated value on low taxes while disregarding all of the other ingredients that go into the economic stew.

American corporations already pay little by dodging payment on a large sum of their revenues. A three year study prepared by Citizens for Tax Justice concluded that the effective tax rate for 280 of the biggest publicly traded American corporations is equal to 18.5 percent of their profits. This is slightly more than half of the official rate of 35 percent. Of these 280 corporations, 30 were found to have not had any federal tax liability for the duration of the study. To put this in a historical context, the amount paid in taxes by corporations today adds up to 1.5 percent of the nation’s gross domestic product in contrast to the 6 percent of GDP paid in taxes by corporations in the 1950’s.

Despite many corporations paying next to nothing in taxes during the duration of the study, from 2008-2011, underemployment and unemployment have increased. This shows that there is no linear connection between tax rates and economic growth or employment.

The idea that corporations seek to invest in a country based mostly on its corporate tax rates is also a myth. According to the Citizens for Tax Justice study, two thirds of the American companies with significant profits overseas pay more in taxes to foreign governments than they do back home. This is evidence that there is something overseas that makes paying those higher taxes attractive to American companies or, at the very least, that tax rates have little to do with a company’s decision to do business in a country.

There are other factors that shape an economy besides corporate tax rates. Having an educated and skilled labor force will attract higher paying jobs. A country with better infrastructure will allow better transportation of goods. A government providing a reasonable social safety net will stabilize a consumer base in ways that a corporation could not.

Economic policy has always been a fairly boring talking point for politicians. Voters paying attention to a candidate’s economic ideas instead of emotionally charged stances on war or abortion is a bit like eating broccoli instead of brownies. Trying to simplify economic policy into sound bites in order to provide the voter with a sexier package is reckless though. These sound bites are repeated so much that they depart from fact based debate and reside in a land of ideology. This gets in the way of any reasonable debate and distracts from real solutions. And real solutions are, at the end of the day, what benefit everyone.

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