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The fallacy of corporate taxes in a neo-liberal context

By Michael Laxer | Rabble | November 23, 2013

“Make the corporations pay!”

It is a slogan that sounds good, and with which I would fully agree, under conditions where “corporations,” or, more accurately, those who control them, were actually paying. But this is not the case in the debate in Canada today where many on the left are falsely proclaiming corporate taxes as an alternative to increasing personal taxes, even on the wealthy, and seem to display little understanding that corporate tax rates have nothing at all to do with inequality socially and are not at all a tax on wealth or the wealthy.

When Thomas Mulcair juxtaposes his “plan” to increase corporate taxes as a “progressive” alternative to Toronto-Centre candidate Linda McQuaig’s previously stated notion that taxes should be increased as well on Canada’s wealthiest individuals, he is fundamentally juxtaposing McQuaig’s plan that might accomplish something to a plan that will accomplish absolutely nothing.

The essential fallacy of mythologizing corporate taxes in the present context lies in the fact that, unless you agree with the U.S. Supreme Court, corporations are not people. By definition, if government taxes a corporation, ultimately some individuals, somewhere, pay the bill. Corporations cannot pay anything, any more than a house you own pays its own property tax. Given that corporations can, will and must extract the money to pay their tax bills any number of ways, from increasing prices, to attempting to force down worker wages and benefits, to finding creative ways to reduce nominal profit (which includes actually increasing CEO salaries or privileges, which are a “cost”), in the absence of a campaign to dramatically increase personal taxes on the managerial and CEO class of corporations or to re-adjust social power relations through the threat of socialization of assets and/or price controls, the net effect of corporate taxes, in terms of income levelling, will often  be either zero or regressive.

It sounds radical, and is therefore appealing to centrists who wish to nominally appear radical, but its impact on inequality is essentially non-existent for the very simple reason that inequality is driven by disparities in the incomes that exist between individuals. Inequality is facilitated by corporations and corporate actions, but it is manifested in the difference between people and people alone.

This exact inequality exists within corporations themselves. Corporations are comprised, as a general rule, of workers, managers and upper management. Given the nature of the capitalist economy, the way corporations will seek to lessen the impact of higher taxation will not be at the expense of their CEOs.

It is not corporations who own multiple mansions, live lavish lifestyles or indulge in tremendous decadence, it is wealthy people who do so. The disparity between rich and poor is not between rich and poor companies, but rather between rich people and those living working-class lifestyles or those actually living in poverty.

Taxes on corporations, in isolation, separated from higher tax rates on the wealthy individuals who own, profit from and run the corporations, act as little more than waypoints to collecting taxes on corporate workers or customers.

“Progressive” politicians, New Democrats, Liberals and Democrats alike, like the corporate tax narrative when it suits them precisely because it does not threaten any actual people at all, whether it is Galen Weston or one of his Loblaws cashiers. They can claim to be holding the banner of redistributive justice high. To be defending the mythical “99 percent.”

Yet these taxes can only have an impact on inequality if you assume, barring personal tax increases, that corporations will pass the “costs” of higher taxes along, out of a sense of social justice, to their corporate boardrooms. This is, frankly, a counterintuitive and bizarre assumption for leftists to make.

They will not. They will, as they always do, make their workers pay.

We need to move beyond the false narrative of so-called “corporate taxes” as a solution under capitalism and, instead, to advocate for both a dramatic increase in personal taxes on the wealthy and the upper middle class with a corresponding fight to socialize corporate assets. We need to tie this to an entrenchment of union and workers’ rights and democratization of the economy.

It is time to actually make those who benefit from the corporations pay. By higher taxes on capital gains, by higher income taxes on the wealthy and managerial class, by inheritance taxes, by expanding the legal rights and powers of workers.

By advancing expropriation and radically new ownership models.

Until then, when it comes to understanding how to tackle income inequality and its consequences, it is the pre-by-election Linda McQuaig who was right and it is the desperate-for-power NDP leader Thomas Mulcair who is wrong.

November 24, 2013 Posted by | Deception, Economics | , , , , , | Leave a comment

The Great Corporate Tax Shift-Part 1

By Jack Rasmus | November 19, 2013

The great corporate myth-making machine has been hard at work of late, attempting to create the false impression that US corporations are increasingly uncompetitive with their foreign rivals due to the fact they pay much higher corporate taxes in the US and abroad than their capitalist counterparts. But that is one of the great myths perpetrated by corporate apologists, pundits and their politician friends. The myth is high in the pantheon of conscious falsifications their marketing machines feed the American public, right up there along with such other false notions that ‘business tax cuts create jobs’, ‘free trade benefits everyone’, ‘income inequality is due to a worker’s own low productivity contribution’, ‘overpaid public workers are the cause of states’ budget deficits’, or that ‘social security and medicare are going broke’.

If corporate America can create and sell the idea that they pay more taxes than their offshore capitalist cousins, then they are half way home to getting their paid politicians to provide them still more corporate tax cuts—a proposal by the way that both Republicans and Obama are on record for, in their joint proposal to reduce the top corporate tax rate from 35% to 28% (Obama) or 25% (Republicans).

The message of too high corporate taxes is appearing more frequently nowadays, since actual legislation for big corporate tax cuts is now working its way through Congress. Driving the legislation are Teaparty favorites in the House of Representatives, like David Camp, head of the Ways & Means Committee, and Max Baucus, Democrat in the Senate, who is set to retire in 2014 and wants to give his business buddies yet another big cash freebie (you know Max, the guy who rode herd on that Health Insurance Corporation subsidy bill called Obamacare?).

So it’s time to debunk the ‘US Corporations Pay Too Much Taxes’ (and thus need another tax cut) myth. What follows is the first segment of a longer essay—with tables and graphs—on the same topic that will appear shortly in the December issue of ‘Z’ magazine. More segments of that essay will follow.

US corporations don’t pay the nominal corporate tax rate of 35% today; they pay an effective (i.e. actual) rate of only 12%. The additional effective state-wide corporate income tax they pay amounts to only a 2% or so—not the 10% they claim. And the effective corporate tax on offshore earnings is only another 2.2% or so—not the 20% average they’ll complain. So the total US tax for US corporations is barely 16%–not the 35% plus 10% (state) plus 20% (offshore) nominal tax rate. And however you cut it, the story is the same: US corporations’ share of total federal tax revenues have been in freefall for decades. The share of corporate taxes as a percent of GDP and national income has halved over the decades. And corporations since 2008 have realized record level profits during the ‘Obama Recovery’—while their taxes as a percent of profits since 2008 is half that of the average paid as recently as 1987-2007. Okay, more detail on all that in parts 2 and 3 to follow.
For the moment, what all the corporate tax cutting to date has produced is a mountain of corporate cash.

US Corporations today in fact are sitting on more than $10 TRILLION in cash!

For example, even the US business press admits today that US multinational corporations have diverted more than $2 trillion to their offshore subsidiaries, to avoid paying the U.S. Corporate Income Tax. (watch for parts 2 and 3 of to follow for how they do this).

In addition to the $2 trillion now diverted by US multinational corporations offshore, after having paid federal taxes another $1 trillion is now held as cash on hand by the 1,000 largest nonfinancial companies based in the U.S. as of mid-2013, an increase of 61% in the past five years, according to a study by the REL Consulting Group.

For financial companies, deposits in US banks are currently at a record $10.6 trillion, while bank loans outstanding have been declining since 2008 and are now at a record low of $7.58 trillion—thus leaving US banks sitting on a cash hoard of nearly $3 trillion according to the Wall St. Journal. That’s a total approaching $7 trillion so far.

This record after-tax cash exists despite corporations having bought back their stock and paid dividends worth trillions more since 2008. Corporate buybacks of stock since 2009 passed the $1 trillion mark in 2012, according to a survey by Rosenblatt Securities—with projections to increase at an even faster rate of $400-$500 billion more in 2013. Corporate dividend payouts equaled another $282 billion in 2012 alone, perhaps at least that amount in years prior, and are today projected to exceed $300 billion in 2013. That’s another $2.5 trillion.

Include hundreds of thousands of US corporations and businesses that are not part of the largest 1000 or who don’t operate offshore—plus cash socked away in depreciation funds and other special funds for all the above—and that comes to at least another $500 billion.

That $10 trillion corporate total, moreover, doesn’t include still further additional dollars that have been spent by US corporations abroad. While business investment in the US has been declining, total US corporate foreign direct investment is estimated at $4.4 trillion in 2012, up from $3 trillion in 2007 and from $1.3 trillion in 2000. So that’s another roughly $1.4 trillion in corporate income committed offshore since the official ‘end’ of the recession in June 2009.

Add all that up and its well more than $10 trillion in buybacks, payouts, and hoarded cash (onshore and offshore) by US corporations since 2009—i.e. during the sub-par economic recovery (for the rest of us) of the past four years. That’s corporate income and cash that has been diverted, hoarded, or otherwise not committed to US real investment, and therefore never contributing to jobs, income creation and consumption in the US. No wonder consumption (70% of the US economy) for the bottom 80% households in the US has been stagnating, stalling, or declining in the US in recent years. No wonder all the US economy can do is create low wage, contingent, service jobs, while more than 20 million are still unemployed and uncounted millions more have left the US labor force altogether. No consumption recovery follows declining US investment, while tens of trillions of dollars go elsewhere or sit on the sidelines.

To summarize, at least as much as $10 trillion—and perhaps approaching $12 trillion—has been taken out, redirected, diverted, or otherwise hoarded by US corporations since the 2008 crash. Keep all that in mind when you next hear politicians from the two wings of the one party system in America—Republicans and Democrats—and their friends in mainstream media trying to justify proposals for still more corporate tax cuts.

Jack is the author of the 2012 book, ‘Obama’s Economy: Recovery for the Few’ (Pluto press), and host of the weekly radio show, Alternative Visions, on the Progressive Radio Network. His website is http://www.kyklosproductions and blog, jackrasmus.com. His twitter handle, @drjackrasmus.

November 20, 2013 Posted by | Deception, Economics, Timeless or most popular | , , , , | Leave a comment

Obama’s Corporate Tax Scam

A Black Agenda Radio commentary by Glen Ford | February 29, 2012

Barack Obama can’t hide the fact that he is the One Percent’s president. Most of what he is dangling for the rest of us this election year turns out to be smoke and mirrors, yet he offers corporations a huge tax rate reduction – a gift that will keep on giving long after Obama is gone. It is typical Obama behavior. He sprinkles his speeches with phrases that mimic Occupy Wall Street, then turns around and promises the One Percent a bigger prize than George Bush could deliver.

Obama wants to lower the nominal corporate tax rate form 35 percent to 28 percent. For manufacturing industries, the rate would fall to 25 percent. Big Business has long complained – dishonestly – that American companies are put at a disadvantage by the highest tax rates in the world. But that’s only true on paper. When it comes to actually paying taxes, European corporations give a bigger share of money back to their governments and societies than U.S. companies do. The fact that the U.S. posts a higher official tax rate, while in the real world U.S. corporations pay lower taxes than Europe, is proof of the absolute corruption of the U.S. tax system, where corporations write the tax code and all of its loopholes.

Obama claims he will extract even more tax money from the corporations by doing away with loopholes. There is absolutely no reason whatsoever to believe that. The administration has no plans to revise the U.S. tax code any time soon.

Private studies show the average company pays an effective tax rate of substantially less than 20 percent, and a government study showed that more than half of American companies paid no taxes at all in at least one out of seven years.

Back in the Fifties, corporate taxes made up 28 percent of government revenues. In the Sixties, the corporate share was 21 percent of each dollar of taxes. Today, corporations only account for ten percent of the money the U.S. government takes in per year. In other words, they have never had it so good.

Hardly anyone outside the administration believes that the Obama plan will wind up collecting more corporate taxes than it gives away. The grassroots National People’s Action projects that permanently lowering the tax rate will cost the federal government $700 billion over the next ten years. The loss in revenue will increase pressures to cut programs that serve people – which is another way of saying that the 99 percent will pay for the tax reductions of the corporate 1%.

Even in the highly unlikely event that the Obama plan winds up collecting more tax money through closing down corporate loopholes, the president has already stated that the additional revenue will go right back into corporate pockets, in the form of new or existing tax breaks for favored industries, in manufacturing, clean energy, and research. This, of course, would be the biggest loophole of all. Under a Democratic or Republican administration, every corporation would claim to be a manufacturer, or to be doing research. And, President Obama can’t say the word “coal” without also saying “clean” – so that dirty industry would get tax breaks, too.

Obama’s whole plan is a tax giveaway, not a tax reform. And, that’s the point. It’s a billion dollar election year. Corporations need to know what kind of government their campaign contributions are buying.

Glen Ford can be contacted at Glen.Ford@BlackAgendaReport.com.

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February 29, 2012 Posted by | Corruption, Deception, Progressive Hypocrite | , | 1 Comment