Collecting more taxes than is absolutely necessary is legalized robbery. —President Calvin Coolidge
Will American Politicians Adapt to Economic Reality?
American politicians know our tax system is broken. A recent example is the 35% corporate tax rate plus taxes on American companies’ profits working outside of America. Currently, America’s corporate tax rate is the highest in the world, and other major-industrial countries do not tax profits outside their home country. To counteract this punitive tax burden, American companies have been buying foreign companies and moving their headquarters out of America, which is called inversion.
Rather the legislating economic reality – money will be invested for the safety and best profit – our politicians demagogue against said companies. President Obama called the companies moving their legal address out of America “corporate deserters” and his Secretary of the Treasury stated they were “unpatriotic.” Senator Durbin (D-IL) used coercion to stop Walgreens from moving to Switzerland. The Wall Street Journal reports, “In his latest missive, Durbin used a mix of derision, moral suasion and sarcasm in addressing Greg Wasson, the Walgreen chief executive.”
So, our political, elite demagogue can deride corporations to stop moving out of the United States. Ultimately, derision and coercion will fail. Global capital investment will gravitate to safe and high returns on investment – Ireland, Canada, Switzerland to name a few. What should America’s political elites do? Easy; listen to the smart people and stop playing politics.
Laurence Kotlikoff, of Boston University, and colleagues from Oberlin College and University of Wuerzburg have found that when investment capital leaves America, it is the American worker that is hurt. There are less jobs and the demand for labor decreases as do their wages. The reverse would be eliminating the American corporate income tax and increase investment capital into the United States, which would increase work and wages. The report states:
“We find that eliminating the U.S. corporate income tax with no changes in the corporate tax rates of the other regions can produce rapid and dramatic increases in U.S. domestic investment, output, real wages, and national saving. These economic improvements expand the economy’s tax base over time, producing additional revenues that make up for a significant share of the loss in receipts from the corporate tax. … Stated differently, in our model, eliminating the U.S. corporate income tax has the potential to raise the welfare of all US generations.” Read the full article.)
The political and economic solution is apparent. Eliminate the 35% corporate tax. Money will be invested in the United States. Worker’s productivity and income will rise. America’s economy grows. All generations of Americans prosper. Eliminate the corporate tax, as President Coolidge knew, Collecting more taxes than is absolutely necessary is legalized robbery.
In the case of the corporate tax, American politicians are stealing from working Americans.