Corporate Taxes

November 21, 2017

How to Sell a Corporate Tax Cut

My article as originally published in American Thinker:

Finding a way to prevent the next Burger King from fleeing the U.S. (to avoid paying the highest corporate tax rates in the world) appears to rank fairly high on the priority list for both Republicans and Democrats. But the two parties couldn’t be farther apart on the appropriate policy to end these so-called “unpatriotic” tax inversions.

No strangers to coercion, the Obama administration via Treasury Secretary Jack Lew recently announced that through the use of executive action, “the agency would change several tax rules to stop companies from buying smaller, foreign firms and then moving out of the U.S.” These types of “solutions” will only serve to further slow down an already stagnant economy.

Alternatively, Republicans support free market solutions (at least some still do) and believe that a lowering of the corporate income tax rate would put an end to these tax inversions and help revive the economy. Better yet, as John C. Goodman asks in a recent Forbes piece: “Why do we have a corporate income tax in the first place? Economists know that corporations don’t pay taxes. People pay taxes.” Good question.

But given the Republican Party’s messaging problem, how could they get a majority of the public to support any kind of meaningful corporate tax reform let alone abolition?  Although Americans would clearly benefit from the resulting combination of higher wages, new business creation, higher dividends, and lower product and service prices, the mainstream media instead focuses on one thing — corporate greed.

Unlike Republicans, if the Democrat Party were to suddenly be in support of eliminating the corporate income tax (I know, stay with me here), they would sell it in a way that would excite the electorate and have the American people marching in the streets demanding it.

Perhaps Republicans could attain that very same outcome by proposing a corporate tax reform plan that includes profit-sharing with employees — one that cuts the corporate tax rate by 50% and effectively abolishes it at the same time?

First, eliminate all loopholes that help enrich politicians, squander company resources on (legal) tax avoidance and give crony corporations an unfair advantage in the marketplace. Then allow businesses to either “patriotically” pay the full 35% rate on profits (we could call this the Buffett option) or instead keep 50% of the taxes due, and then distribute the remaining 50% equally among all employees. This would have the effect of a 50% tax rate cut for corporations, an immediate income increase for workers and — perhaps most importantly — keep the bulk of this supply-side money out of the mismanaging, economy-killing hands of the elites in Washington, D.C.

But what about corporations that employ large numbers of non U.S. workers? Should they be rewarded for shipping jobs overseas? In a piece over at Breitbart, Rick Manning calls for a reduction of the corporate tax based upon the number of U.S. employees the firm employs: “Eliminate all corporate tax breaks, and replace the current code with a tiered tax system based upon how many of your workers are employed in the United States.”

The same concept could be easily applied to a profit-sharing tax plan. Corporations with zero foreign workers could pay zero in taxes while businesses with seventy percent of their workforce in the U.S. would have to pay thirty percent of the taxes due and the remaining seventy percent could be kept with half of it distributed to their American employees.

While some politicians are scheming for ways to bring home the 1.4 trillion or more in corporate profits parked overseas (which would only further line their pockets as well as those of their cronies), this profit-sharing tax plan could provide for a tax holiday under the same terms and help bring back some of this money in a way that would actually stimulate the economy.

Democrats claim that they want the economy to grow; that they want to see more money in the pockets of American workers and that they want to keep American jobs from being shipped overseas. This plan would certainly move us towards accomplishing all three of those goals. 

With the labor participation rate at a record low, isn’t it time for Republicans to start being creative and — at the very least — call their bluff?