Bill to Abolish Corporate Income Tax, Create Jobs

by Bob Ward

Sept. 14, 2011 – U.S. Rep. Louis Gohmert (R-TX) has introduced legislation, his version of an "American Jobs Act of 2011," preempting the title that dithering President Obama wanted used for the tax-and-spend-to-create measure he had in mind.  Alternately, Gohmert's version of the Act would abolish the corporate income tax.  The very conservative East Texas Congressman asserts that the measure will create jobs in the U.S. as well as increasing revenue to the government.  “America,” Gohmert said, “would instantly become a safe haven for businesses resulting in an explosion in revenue increases.” Currently, he noted, American manufacturing jobs are moving overseas where the business climate is more favorable.

Gohmert correctly pointed out that corporate taxes are “paid for by people in the form of lower wages to American workers and less money paid out in dividends in everything from 401K retirement accounts and to those who would risk their capital in business ventures. This type of capital investment is where jobs come from.”

The corporate income tax is also unfair because it double-taxes money earned by the business.  An income tax is levied on money earned by the corporation and that same money is taxed again when it is distributed to the corporation's owners -- the shareholders -- in the form of dividends which are regarded as personal income. It is comparable to a worker's wages being taxed when he earns them, at the end of each working day, and again when he collects them on payday.

Some politicians want the public to believe that the corporate income tax reduces the tax burden of individual  taxpayers.  But savvy taxpayers know that corporate taxes make tax collectors, not taxpayers, out of corporations. The corporation's tax bill is converted into higher prices for its customers, lower pay for its employees, fewer jobs for the community and lower dividends for its stockholders.

The impracticality of the corporate income tax is especially salient at the present time when government is supposedly doing all it can to reduce unemployment.  Billions have been appropriated to create makework jobs which merely shift work from the private to the public sector.  It would be preferable to remove the obstacles to expansion and investment so that Americans can return to real jobs that produce goods and services.  A drastic reduction in the corporate income tax would help achieve this.  Gohmert's bill abolishing the tax is even better.

While politicians may find it useful to cultivate the myth that "the little guy” is helped by socking it to "big business," it just isn't so and Rep. Gohmert is a politician with the wit and courage to say so.

Corporate Income Tax Unfair, Impractical

by Bob Ward

As Congress takes up the President’s plan to revive the economy, it would be an opportune time to review an inequitable and impractical feature of our Federal tax system - the corporate income tax.

Currently, an income tax is levied on money earned by the corporation.  That money is taxed again when it is distributed to the corporation's owners -- the shareholders -- in the form of dividends which are regarded as personal income.  It is comparable to a worker's wages being taxed when he earns them, at the end of each working day, and again when he collects them on payday.

Too many politicians want the public to believe that the corporate income tax reduces the tax burden of individual taxpayers.  But savvy taxpayers know that corporate taxes make tax collectors, not tax payers, out of corporations.  A corporation does not produce money out of thin air with which to pay its taxes.  A corporation's tax bill is converted into higher prices for its customers, lower pay for its employees, fewer jobs for the community and lower dividends for its stockholders.

The impracticality of the corporate income tax is especially salient at the present time when government is supposedly doing all it can to reduce unemployment.  Billions have been appropriated to create makework jobs which merely shifts work from the private to the public sector.  It would be preferable to remove the obstacles to expansion and investment so that Americans can return to real jobs that produce goods and services.  A drastic reduction in the corporate income tax would help achieve this.  Its abolition would be even better.

While politicians may find it useful to cultivate the myth that "the little guy” is helped by socking it to "big business," it just isn't so and we need politicians with the wit and courage to say so.

Congress should take this opportunity to encourage capital formation and make it easier for business to expand and hire workers.

TAX CUTS HELP DEFICITS, JOBS

By Bob Ward

(updated 12/07/2010)

Even though President Obama has agreed to extending the Bush tax cuts for all income levels of taxpayers in return for GOP concessions on unemployment benefits, some Congressional Democrats are still opposed claiming the tax cuts will add to the deficit by reducing Federal revenues. It’s anybody’s guess whether they are lying or just ignorant of the historical record which shows that just the opposite is true: lower taxes produce greater revenue for the Federal government, not less.

The Bush tax cuts did not diverge from this record. In July, 2006, Michael Franc of The Heritage Foundation reported that Federal revenues rose by $206 billion (13 per cent) during the first nine months of the fiscal year when he was writing. That increase followed that previous year's “record surge in revenues,” when Federal revenue grew by $274 billion (15 per cent). These increases following the Bush tax cuts allowed the White House to lower its projected budget deficit by more than $100 billion.

Franc noted that in the two years before the Bush tax cuts U.S. economic growth averaged about one per cent and unemployment was at six per cent. After the tax cuts, he said, economic growth averaged four per cent for three years and the unemployment rate dropped to an “historic low” of 4.6 per cent.

Economist Daniel Mitchell was not surprised by these results. “Lower taxes,” he said, “leads to more work, saving and investment. It's not exactly rocket science."

The experience with the Bush tax cuts was not unique. A similar result occurred when Ronald Reagan cut taxes. The Heritage Foundation notes that annual revenues over the next decade averaged $102 billion above their 1980 level. Total tax revenues for the decade rose by 99.4 per cent, just short of double. Heritage also noted that Federal revenues had been dropping in the years just prior to Reagan’s tax cut.

Once upon a time even Democrats understood economics. President Jack Kennedy observed: “Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that . . . an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits... In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.”

Kennedy’s solution to low tax revenues was to reduce the top tax rate (the one paid by Barack Obama’s hated millionaires) from more than 90 per cent down to 70 per cent. As a result, tax revenues went from $94 billion in 1961 to $153 billion in 1968, an increase of 62 per cent.

Kennedy, Reagan and Bush just retold an old story. Way back in the 1920s tax rates were slashed from over 70 per cent to less than 25 per cent. And revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

Andrew Mellon, Treasury Secretary during the 1920s, had figured out that when taxes are too high, people just don’t pay them. Wealthy taxpayers, the target of the high marginal rates, simply withdraw their money from productive business and invest instead in tax-exempt securities or other lawful methods of avoiding having their income taxed. The result, Mellon observed, is that capital is diverted into channels “which yield neither revenue to the Government nor profit to the people.”

Democrats have to choose. Do they want a tax policy that increases revenue and creates jobs, or do they want to indulge in class-warfare by opposing any tax cuts that might benefit a wealthy person.