The fallacy of corporate taxes

Rhetoric over taxes is currently dominating every debate over the economy. Unfortunately the rhetoric around these tax doesn't match the reality. Take for example a recent post by the Detroit News' own George Bullard where he opined "Maybe the private sector could deliver more jobs if taxes, compared to other countries, were less burdensome?".

The proof that is most often offered to back this point is that the US has the highest corporate tax rate. While technically this is accurate, the US does have one of the highest statutory corporate tax rates in the world the reality is that almost no business pays this rate thanks to the convoluted tax system that allows some companies to pay nothing or get money back from government.

Of the 19 member states of the Organization for Economic Co-operation and Development (OECD) the US has the 5th lowest effective tax rate. At 13.4% the US is below the OECD average 16.1%.

Additioanlly, when considering corporate taxes as a percentage of GDP the US actually has the absolute lowest corporate tax rates of the OECD member states.

The fact is, when it comes to actual taxes paid, the US compares rather favorably to other nations. I think what many people don't understand is that US corporations do not pay income tax. They only pay taxes on profit and over the years companies have found many ways to make profit disappear and lower or eliminate their tax burden.

Given this, corporate tax cuts will only help companies that are already making profits. According to the NY Times, small businesses, which employ about half of the countries private sector employees, are struggling to break even. So for companies not making a profit like many of our nations small businesses, tax cuts will not lead to greater employment. The same article also says that "more small businesses say that they are planning to shrink their payrolls than say they want to expand them."

A recent NFIB survey found that while there are a number of companies that think corporate tax rates are holding them back the number is relatively unchanged over the past decade. Conversely the number of companies that rank "poor sales" as their biggest challenge has doubled since the economic downturn started.

Making matters worse is the steadfast belief that all things private sector are good and all things public sector are bad. By cutting back on government employees we are moving these jobs to the private sector and in example after example after example the tax payer ends up spending more money for government services offered by private corporations.

So while large corporations are pulling in record profits, Republicans want to give them a tax break. While small businesses struggles to stay afloat, diminishing tax revenue has cost the economy a half million consumers. While the unemployment pushes ever higher, Republicans will only accept more job killing cuts. While the rich took home more of the countries income than anytime since the great depression, Republicans insist that tax cuts are off of the table. And I thought President Obama was supposed to be the radical?