Sunday, June 9, 2013

That thing about corporate profits and taxes….



American businesses should pay taxes in America, regardless of their international hiding places for reported profits.

James Surowiecki at NewYorker.com recently shed a little more light on the continuing muddle of half-truths that passes for news reporting on U.S. business taxes. Y'all know about that top marginal rate of 35%, right?

Well, here's the scoop, again, for the zillionth time: more or less no American company pays a 35% tax rate, except for the unfortunate owner here and there who never heard of "lawyers."

In the news right now is the report that after-tax corporate profits in the U.S. are a good deal higher than they normally have been, and taxes are getting lower and lower. My buddy Jim says: "In 1951, corporations had to pay almost half of reported profits in taxes. In 1965, they had to pay more than thirty per cent. Today, they pay only around twenty per cent."

In fact, the effective average U.S. corporate tax rate in 2011 was 12.1%, the lowest since World War I—in other words, the lowest real rate in almost 100 years!

So, on average, businesses are paying much less than half of the nominal business tax rate. And, some, notoriously, like Apple Inc., pay hardly any tax on billions of dollars of profits, much of it from foreign operations ("foreign," that's the euphemism for the places where many American jobs have gone).

In fact, Surowiecki notes that a "a study of two hundred and sixty-two [S&P multinational firms] found that, on average, they got forty-six per cent of their earnings from abroad. This is a relatively new phenomenon. As late as 1990, foreign earnings accounted for only a small fraction of corporate profits in the U.S. Today, they account for almost a third of corporate earnings, and they’ve nearly tripled since 2000."

Seems to me that American businesses with operations in the U.S. are using and consuming the domestic services that we all pay for: roadways, water and sewer and electricity, airports, fire and police protection, environmental cleanups, you can add to the list….and don't forget the unfunded pension liabilities that many American corporations have foisted off on the federal government, i.e. you and me.

Business taxes in America should be based on revenues related to their physical operations in America, and the scope of their impact on the environment and their consumption of goods and services.









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