The New York Times yesterday jumped on the evil-corporations bandwagon: "Here is a crazy idea to address the United States' gaping fiscal deficit: persuade corporate America to start paying taxes."
The Times is referring to a recent study by the Government Accounting Office that found some two thirds of U.S. businesses—including a quarter of large corporations—did not pay yearly taxes from 1998 to 2005. This blog addressed some of those reasons when the report came out last week. While there are no doubt some out-and-out cheats, there are also a lot of reasonable explanations for this tax-receipt shortfall.
The biggest reason for the disparity, however, lies not with corporations, but with lawmakers.
As the Times states:
It is a uniquely American paradox. The country's corporate tax rates are among the highest in the industrial world, yet the taxes that corporations pay are among the lowest.
In fact, what the Times calls paradoxical is the logical result of the tax structure Congress designed. With the second-highest corporate income tax in the world, lawmakers have sent a clear signal that outright profits are bad. Meanwhile, the tax-deduction and tax-credit clauses favor infrastructure development, research, and expansion. So it's no wonder that companies are taking advantage of the latter.
The efficacy of the two couldn't be clearer. Confiscate profits and no one will turn one; reward inward investment and everyone will do it.
The trick for lawmakers is in striking a balance between the two. And for that, the Democrats currently in charge might take a play from the Clinton administration during the mid-'90s trade talks on GATT, the precursor to the WTO. By lowering tariffs on goods, the Clinton administration reasoned, more goods would come in and consequently overall tariff revenue would rise. Tariffs are taxes, of course, and the same theory applies to corporate America: Make taxes less confiscatory, and more companies would choose to pocket their profits and cut Uncle Sam his slice.
The larger question, however, is what end larger tax revenues would serve. The Times expresses concern about the federal budget—a problem created by Congress, not companies—but then it would reward those who created the deficit with even more funds. That, as the Times says, is a crazy idea.
But if the federal budget deficit has the Times worried, it might call for less spending. Step one is reforming unwieldy programs like Social Security and Medicare, which in their current state everyone agrees are unsustainable.
Lastly, before the Times's editorial writers get too high-minded, they might ask whether the paper's bean counters employed any tax-avoidance strategies themselves. They might be surprised at the answer; those strategies very well might have saved their jobs.