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03-26-2011, 10:33 PM | #1 |
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Our Tax Code Is Corrupt - By Kevin D. Williamson - Exchequer - National Review Online
What General Electric has in common with the guy who runs Obama’s IRS: not paying taxes. That New York Times report on G.E.’s remarkable ability to avoid paying U.S. taxes has been getting a lot of attention today, but there was one paragraph that reminded me of why I’m a flat-tax guy: G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress. As government extends its reach over every aspect of the economy, this sort of corporatism will only become more deeply entrenched in fields like health care and energy. What G.E. has done with taxes, the insurance giants will do (and have done) with Obamacare. Everything looks like ethanol. But I’ll take a little bit of issue with Ezra Klein’s response: So patriotic! It really explains why President Obama tapped Jeffrey Immelt, GE’s CEO, to lead the President’s Council on Jobs and Competitiveness. If this isn’t the sort of corporate behavior America needs more of, what is? I’m sort of creeped out by this particular usage of the word “patriotic,” as though the alternative to the profit-maximizing corporation were the Great People’s Patriotic General Electric Corporation. (I also intensely dislike the proposition that paying taxes is an expression of patriotism, as though the state were the nation.) But I’ll say this: Yes, this is exactly the sort of corporate behavior America needs more of, inasmuch as our corporate-tax regime is kind of dumb, and also kind of corrupt, and one way of cleaning that up is to abolish it. In spite of our having the second-highest nominal corporate-income tax rate in the developed world (Hello, Japan!), the rates actually paid by businesses vary wildly according to their political clout. Progressives look at that and see the evidence of businesses’ having undue influence on Washington; I look at that and see evidence of Washington’s undue influence on business. But it’s a two-way street, and the end product smells the same. There are many arguments for a flat tax: Compliance costs are lower, it’s easier to understand, it doesn’t create a divide-and-conquer dynamic with regard to the tax brackets, it aligns taxpayers’ incentives, etc. But there’s a practical moral argument, too: The tax code is corrupt. Using the tax code as a cookie jar full of special favors for friends and supporters is corrupt. It does not matter that it’s legal, it is immoral. The purpose of taxes is to raise revenue for the government, not to repay political favors or to bribe voters with their own money. I do not think our tax system probably is really salvageable: Obamacare is not the only thing that should be repealed and replaced. While everybody else was filling out their college-basketball brackets, I was working on my fantasy federal budget (I know, I know, I’m a lot of fun on dates), which is not yet complete, but which I will share when it is. (I’m planning a fantasy-budget reader contest.) My revenue side assumed a true flat tax on all forms of personal income — salaries, benefits, bonuses, dividends, inheritances, capital gains, etc. — and, once I’d trimmed the federal government back as small as I think we could realistically get it, figured that I could fund it with a flat rate of about 20 percent, and no corporate income tax. (I think this might be good for investment.) The upside of the fiscal crisis that our country insists on marching toward is that it will give us the opportunity to enact radical reform of some of our most important institutions, and the tax code should be high on the list. A federal/state/local system that produces a $3.2 billion tax benefit for G.E. but taxes the pants off of poor people to fund useless schools that do their children very little good (and a great measure of harm, in many cases) is an unbearable burden. It has to go. |
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03-26-2011, 11:30 PM | #3 |
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It's not really an argument for a flat tax. It's an argument against almost any deductions. You pay the rate. You deal with it. Then we can lower the rate. |
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03-26-2011, 11:51 PM | #4 |
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Yes, he was being sarcastic. Meaning he thought it was unpatriotic. Which is why the article has qualms about his definition of patriotism. |
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03-27-2011, 12:28 AM | #5 |
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Oh, I didn't take it that way. I thought it was mocking how when people like Immelt are appointed to executive branch posts they're praised as patriotic public servants out for the national good. I have no problem with what he did for GE--it's Congress's and the IRS's role to close loopholes. I do take issue with him being on PERAB. What he did wasn't patriotic of unpatriotic? Not that I'm in Klein's head. |
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03-27-2011, 01:31 AM | #6 |
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But that is the thing, they aren't loopholes. What companies like GE are able to do is actually legislation passed to allow them to do that. For instance, a lot of those tax writeoffs are from legislation passed to promote "green" appliances and technology. |
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03-27-2011, 11:24 AM | #7 |
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But that is the thing, they aren't loopholes. What companies like GE are able to do is actually legislation passed to allow them to do that. For instance, a lot of those tax writeoffs are from legislation passed to promote "green" appliances and technology. I'm in full agreement that our tax code is corrupt. I would rather have a flat tax; however, I don't have faith in Congress coming up with a fair flat tax either. |
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03-27-2011, 04:36 PM | #8 |
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03-27-2011, 05:31 PM | #9 |
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Here is the big problem with a confusing, corrupt 80K page tax code
Obama stands by GE's Immelt | POLITICO 44 Carney said Obama is “bothered” by companies that take advantage of loopholes to pay fewer taxes, although Carney said he wouldn’t address GE’s case specifically. “Americans, I'm sure, who read that story and heard about it, are wondering how this could be,” Carney said, referring to a report that GE didn’t pay taxes last year. “And one of the reasons why it could be ... is part of the problem of the corporate tax structure.” Carney described a hypothetical situation markedly similar to GE’s case, in which companies hired “armies of tax lawyers” to understand how the system works and use loopholes to avoid paying taxes. Can the average American Income Tax payer afford 'armies of lawyers' and or lobbyists to put 'loopholes' in the tax code? |
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03-28-2011, 02:04 AM | #10 |
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03-28-2011, 03:00 PM | #11 |
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Speaking of ... after the game 60 minutes has a piece on corps and tax shelters overseas to protect themselves from US Tax rates |
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03-28-2011, 03:13 PM | #12 |
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RealClearMarkets - Time to Scrape the Corporate Tax Barnacles
If you own a boat, or have a friend who does, you know that it has to be hauled out periodically to scrape and paint the bottom. Neglect this and over time the barnacles grow so thick that despite cranking up the engines you can barely make 10 knots. Not to mention burning prodigious amounts of fuel. The corporate tax code is very much the same. Every generation or so it has to get hauled out to scrape off the encrustations of tax breaks that this Congressman or that has doled out to one special interest group or another. Neglect this and over time not only does government revenue decline, despite world-beating tax rates, but corporations twist themselves into so many knots that the entire economy suffers. We have reached that point. No sane economist believes that having a corporate tax rate among the highest in the civilized world helps make American companies more competitive. Mercifully, very few companies actually pay that 35% rate. But the way in which this happens is an opaque, inefficient, corrupt, and unjust mess. Savvy corporations employ armies of tax experts that inveigle themselves deep into a company's operations. These professional tax avoiders restructure businesses, warp product strategies, yank about supply chains, monkey with transfer pricing, shuffle funds through shell subsidiaries, invest in questionable financial transactions, and concoct a thousand machinations that bear no relation whatsoever to making a company's products or services better. But they do impact how much of a company's earnings shareholders get to keep. The larger firms also hire legions of lobbyists who lay the ground work for the tax breaks of tomorrow. Allying themselves with this political faction or that, long term relationships are established wherein Congressmen "friend" certain industries in return for ongoing campaign support. But it doesn't end there. The largest corporations also engage in a form of legalized graft where associated charitable foundations make gifts to causes dear to the hearts of powerful committee chairman or the constituents that elect them. You scratch my back and I'll scratch the backs that scratch yours. Just ask Charlie Rangel, there's no corruption here! Layered on top of it all is the ever present Santa Claus of Industrial Policy, handing out targeted subsidies and deductions to aid and influence industries deemed critical to the next reelection campaign. Like mohair subsidies, still with us after being passed to ensure a steady supply of uniforms for World War I. And the ethanol monster, eating its way through our food supply as it drives up gas prices. All of this is entirely legal, allowing us to look down our noses at the behavior of grasping third world kleptocrats who don't bother with the tax code charade and just deal direct. Poster child for what is wrong with our corporate tax code is the behemoth General Electric, a company with a well-deserved reputation of being good to its customers, its employees, and its shareholders. GE reported worldwide profits of $14.2 billion in 2010 and paid ... negative $3.2 billion in US corporate income tax. Don't get me wrong, GE is a great company. And I am one of those who believe that if we want to maximize the long-term well being of our country the correct corporate income tax rate is zero. But one has to wonder what kind of unnatural acts GE had to perform on its business to not only zero out its tax obligation but to stick out its hand and ask you and me for a check. Leveling the playing field by setting the corporate income tax rate to a revenue neutral 23% - or even better, a growth friendly 12% - while wiping the slate clean of all special interest deductions would have an immediate stimulative effect, except perhaps for the lawyers and accountants that would be let go to gum up some other part of our economy. Yes, companies as skillful at tax avoidance as GE would see their tax liabilities go up. But they would be free to run their businesses for efficiency, profit, and growth. Over time smart guys like this could surely increase their net earnings enough to make up the difference. Congressmen afraid to bite the many hands that feed them could console themselves knowing that the day after the slate is wiped clean they can resume marketing tax breaks to their corporate buddies. Like returning barnacles, these will take some time to accumulate before the whole process has to be repeated. |
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03-28-2011, 09:13 PM | #13 |
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Finally got to watch this during lunch ..
60 minutes creates a villain villain & it isn't the federal government or the IRS? No; it's the producers of the country trying to avoid confiscation of their property. Their overtone is that corporate profits belong to the federal government, not the corporations who earned them, their employees and their investors. Instead of being heralded as heroes for protecting themselves from thieves, these corporations were portrayed as the criminals they are trying to protect themselves from. Imagine 60 minutes doing a program negatively portraying middle class homeowners who buy security systems to protect their homes. It would be equally ridiculous to watch. And why didn’t 60 minutes examine where the government gets the right to confiscate 35% of anyone’s property, citizen or corporation? They didn’t even explore the notion that if the FEDS ‘clamp down’ on this practice; these companies will REALLY move everything overseas thus abandoning all the American jobs while still selling to a non-producing but consuming America. Then, I’m sure, our Govt. would ban that and the companies would move on to other markets all together. Government kills private sector jobs and drives businesses oversees because of a lust for power, money and control. Personally it makes me sick; 35% for what? The right to create jobs and wealth in this country? That would be laughable, if it wasn’t so sad how many fall for that mantra. |
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