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This page contains a single entry by Mark Willen published on June 13, 2008 5:25 PM.

Karl Rove Playbook in Use -- Against McCain was the previous entry.

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TAXES
Corporate Taxes: Change in the Making

By Mark Willen | Comments (2) | Permalink

Some powerful forces are going after the corporate income tax -- everyone from George Bush to John McCain to Barack Obama's new economic adviser, Jason Furman. A flatter and fairer tax seems like a good possibility...and some want to go even further and just get rid of it.

John McCain is determined to make it a campaign issue. Every time he talks about tax cuts, he highlights his plan to slash the top rate on corporate income taxes to 25% from 35%. He argues that the U.S. rate is the second highest in the world, which he says makes it tough for American firms to compete with foreign rivals. What he doesn't say is that the U.S. tax code is riddled with loopholes that lower many firms' tax bills -- so much so that U.S. corporate taxes are the fourth lowest among industrialized nations when tax receipts are measured as a percentage of gross domestic product.

Barack Obama talks about eliminating many of the loopholes McCain ignores, but he has been silent on a rate cut. There's a reason: Corporations are villains in the eyes of many diehard Democrats, but by picking Furman as his top economic adviser, Obama guaranteed that he'd get an earful on the evils of the corporate tax. Furman and his mentor, former Clinton Treasury Secretary Robert Rubin, have called for cutting the rate to 30.5% and for streamlining the code to make it fairer and simpler. He says the loopholes push companies into making investment decisions based on tax implications rather than on what's in their best business interest. A similar plan has been offered by Rep. Charles Rangel, the Democratic chairman of the House Ways and Means Committee as part of a broader tax bill. Bush objects to other elements in the bill, but he, too, favors an overhaul of the corporate tax system.

Some economists advocate eliminating the corporate tax, on the grounds that people, not companies, end up paying it. They say the cost is merely passed on to shareholders who see smaller profits, consumers who pay higher prices and workers who get lower wages. But an argument can be made (and often is) that wages and prices are controlled mostly by market forces, not tax rates. Those who make that case say it's mostly shareholders and top executives who pay the tax and for the most part, they can afford it.

Robert Reich, who served as labor secretary in the first Clinton administration but has since parted ways with Clinton on many issues (he endorsed Obama), argues for eliminating the corporate tax in his recent book, Supercapitalism. Reich thinks shareholders should pay the tax on company profits directly -- at the shareholder's ordinary tax rate. He thinks companies would make wiser decisions if that were the case and that this would help the economy as a whole. Reich adds that this would also solve another problem. Because companies pay taxes, they're considered stakeholders and get a say in political policy to which they shouldn't be entitled.

It's hard to hear all this and not begin to hope that real change is on its way -- assuming the old gridlock of Washington doesn't derail a compromise. It's the kind of governing that Obama and McCain are both promising.

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2 Comments

Jim McGriff said:

Obama is economically inept� and he is getting by with it.

Obama does not understand what makes the American economy successful. Obama tells American youth to go to work for government or a non-profit, a noble career so to speak, instead of working in business. It is evident that Obama does not understand the American free enterprise system.

America is great because of our free enterprise system and the ingenuity of the American worker. The success of Government, non-profits, the entertainment business, Sports, and other such enterprises is dependant on the success of American business and its workers. If Obama does not understand this, he is economically inept and should not lead our country.

There is a story about a small town that decided to get rid of a factory. The citizens thought the factory was unsightly and dirty. The owner was the richest person in town. This owner did not want to move his factory. He came up with a unique idea. He decided to pay his workers in silver dollars one Friday. By his next payday; every citizen in the town had a silver dollar in their pocket. The owner did not hear anymore complaints.

Lou Gerstner, past president of IBM, made the statement that IBM is successful because every worker is a leader. When Mercedes considered Alabama for its first American factory, other states said that Alabamians were unskilled and dumb. In other words an Alabama redneck could not built a car. Now Alabama has several auto makers. Auto makers learned that Alabama workers wanted to learn and work. As Lou said, American workers must be leaders. Our country�s economy is successful because its workers create economic success. American workers leadership and know how is the key to their success. America needs the smartest and best citizens to go into business.

The communist economic system failed because all workers worked for the government. The workers said the government makes believe it pays us; and, we make believe we work. Adam Smith�s invisible hand choked the socialist communist economy to death.

Obama�s simple statement about what our youth should do shows that he really does not understand what creates America�s wealth. America�s wealth is created by the successful American entrepreneur and the American worker. Apparently, Obama does not understand that our government�s role should be to create an environment where American workers and business can flourish.

Obama does not understand that American business needs our best youth to be successful. When American business is successful our government, our citizens, and our non-profit organizations benefit

July 20, 2008 9:04 AM

Jim McGriff said:

Obama states in his acceptance speech, "I will eliminate capital-gains taxes for the small businesses and the startups that will create the high-wage, high-tech jobs of tomorrow."

Obama must be a genius of business forecasting. Obama's statement belies his socialism/communist/central government know-all economic view; versus, our capitalist free market system. The Obama's view is dead wrong.

Who would Obama have eliminated the capital gains tax for in the beginning of the personal computer business of the 1970-1980's. Would it have been the Adam Computer? Would it have been Digital? Would Obama have known about the garage team of Steve Jobs and Steve Wozniak? These Apple computers were hand-built by Wozniak . Or would Obama have given his governmental subsidy to IBM? IBM the giant company that lost out in the personal computer business it had helped to bring to the forefront of our way of life. Obama would have surely known and helped Michael Dell, the University of Texas at Austin student, who started Dell Computer Corporation with $1000 out of his off campus dorm room. Enough! No one could have known or predicted any of the above outcomes.

Obama just does not understand how our country and our free enterprise system predict corporate winners. This free enterprise system allows the citizens of our country to make the choice on which products and companies survive. This choice is made because of the product and service each company provides to their customers. This economic miracle has made the United States of America the greatest country in the history of the world.

Obama or the federal governmental can not begin to understand how any product market will play out over time. This is just another indication of Obama's lack of understanding of what has made our country the birth place of the most successful global companies in the history of the world. Tax policy can only kill this economic miracle. By the way, business does not pay any taxes; the tax costs are included in the products price.

I am not saying Obama does not care about this, he just don't get it.

September 9, 2008 7:30 PM