April 11, 2013


Scrap the Corporate Income Tax (Matthew Yglesias, April 9, 2013, Slate)

The one thing that's really clear about the current corporate income tax is that there's a huge divergence between theory and practice. In theory, profits are taxed at a 35 percent rate. In practice, many companies pay much less than that. General Electric, famously, managed to pay no income tax whatsoever in 2010. The murky incidence of corporate taxation means GE's lobbyists can push to preserve its tax breaks in good conscience. But firms that do pay high taxes can plausibly argue that the current system is unfair and we drastically need rate cuts in good conscience. Meanwhile, other companies such as Apple manage to pay a high rate while also squirreling away untold billions in untaxed allegedly offshore accounts.

Looking at any one of these corporate tax avoidance strategies suggests particular solutions: If you're bothered about companies like GE, scrap various tax breaks. If you're worried about companies paying high rates, lower the rate. If you're annoyed about Apple, go after foreign accounts. But looking at them all simultaneously suggests an alternative to reform. Just give up. Though the corporate income tax as presently constructed supports a small army of accountants, tax lawyers, lobbyists, and CNBC talking heads, it doesn't raise very much revenue. The 1-2 percent of GDP it brings in to the federal government is too much to do without but hardly too much to raise through other means.

Rather than trying to mend the tax, we ought to end it and replace it with something else. 

Posted by at April 11, 2013 7:31 PM

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