Wednesday, January 19

Corporate Tax Sham

by Tom Wright
The sham of corporate taxes: Who is actually being dishonest?

Most people believe we instituted corporate income taxes to reduce the tax burden elsewhere particularly on low-income/fixed-income Americans and to ensure that our corporate citizens pay their fair share for the economic opportunitiesour great country offers.

Unfortunately, even a modest study of the history of taxation will quickly demonstrate that no corporation (or other similar corporate structure) in the recorded history of civilization has ever paid one thin dime or shekel or farthing or picayune or cowrie shell in taxes. Collected and remitted, yes. Paid them? Never. Thus, all of this hoopla over unethical corporate tax shelters and irresponsible corporations simply misdirects our good citizens and journalists. Weve been served up an incorrect target for our ire, ensuring yet another unworkable complication in the guise of a legislative solution usually called tax reform.

Corporations do not pay taxes, people do. This is not a contest between capitalism and socialism, or good and bad, or Wall Street and Main Street. It just is. The buck does not stop at a corporation, it just passed through. This is the nature of the beast. When a corporation is taxed, any one or all three of the following pass-throughs happen in some measure. *

The corporation will raise the price of its goods or services by the amount of the tax and the cost of compliance, if competition allows. Dale Jorgensen, Ph.D., Harvard economist, estimates the federal income tax system requires tax-and-compliance premiums amounting to 20 to 30 percent of each products or services price. These premiums are hidden in the cost of every good or service bought in or exported by our country. Think about that as we try to sell
American-made goods overseas.

With the complexity of our tax code, it should come as no surprise that the compliance costs are actually higher than the tax burden. The National Federation of Independent Business estimates that ratio at 3:1 for small business: three dollars of compliance cost for every dollar of tax paid. Even those corporations that legally (if artfully) zero their taxes still have those compliance costs to pass
through.

Most importantly, whom do these hidden premiums really hurt? Who can least afford the increased cost? Why the low-income/fixed-income citizens we set out to protect when we taxed corporations in the first place?

Often global competition (and WalMart) will not allow pricing to absorb the entire cost of taxes/compliance. What is the next corporate move? Reduce the cost of
labor. Who loses their jobs to efficiency or foreign manufacturing? It is our low-income friends again, taking it on the chin and out of their wallets.

Now, assume prices are as up as they can be and labor costs are as down as they can be, and there are still taxes/compliance costs to pay. What do corporations do? Lower profits to their shareholders.

For a mom-and-pop, that means a lesser lifestylefor Mom and Pop. That means later or no retirement. For Wall Street, that means union pension funds experience lackluster performance when invested in domestic corporations. This may not be a big concern for the low-income, working poor, but that certainly puts a double whammy on the working class. Fewer jobs and threatened pensions. And then there are the undue burdens our fixed-income retirees. Yet again, the very groups we set out to protect with corporate income taxation are those we punishmost.

So, as we seek an honest solution to a fair distribution of the tax burden, we need to find the correct target to affect a successful solution. Discussions of tax shelters and corporate irresponsibility mislead us. Attacking the wrong solution misdirects the well intentioned. Simply put, taxing corporations burdens the very citizens we seek to protect.

Now, whose idea was corporate taxation? And who is writing these foolish laws anyway? Perhaps more importantly, who is lobbying these bills into law? Probably the same lobbyists who resist replacing the income tax with the FairTax a progressive federal retail sales tax. This legislation (HR 25/S 1493) honestly protects poor and fixed-income Americans while ending the sham of corporate taxation.


Tom Wright, a 14-year veteran of the rebellion to replace the current
tax system, is the volunteer executive director of FairTax.org. You can
reach him at tom@fairtax.org or 1-800-FAIRTAX.

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