Thursday, March 29, 2012

Tax Rates and Corporate Welfare

A constant refrain heard from conservatives for decades is that American corporations are at a competitive disadvantage to foreign competitors due to high U.S. corporate tax rates. Panderbear has a one word reply to that claim. "Bull!"

This claim by Republicans is totally disingenuous, because of the difference between high theoretical marginal tax rates and what corporations actually pay. After all the special deductions, dispensations, and loopholes, effective U.S. corporate tax rates are among the lowest in the world. The fact that American corporations continue to dominate the world economy belies the Republican claim that they are at a disadvantage.

The real bottom line is not what the theoretical tax rates are, but what rates are actually paid. The chart shows that ever since WWII when individual and corporate percentage contributions to government revenues were approximately equal, corporations have received increasingly favorable tax treatment compared to individuals. 

At the end of the war corporate and individual income taxes each constituted about 40% of federal revenues. The corporate share has decreased over the decades to roughly 10% while individuals are contributing close to 50% percent. Instead of contributing equally individuals now subsidize corporations by a 4 to 1 ratio.

Corporate Welfare

Panderbear thinks the data expose Republican claims regarding high corporate tax rates as obvious panders. U.S. corporations are currently getting a virtual free ride at the expense of individual tax payers. This is one more factor contributing to increasing income divergence and a growing wealth gap.

submit to reddit Share on Tumblr

13 comments:

  1. If corporations can enjoy the legal status of persons, they should pay the same tax rates.

    ReplyDelete
  2. I will believe a corporation is a person when Texas executes one...

    ReplyDelete
    Replies
    1. See http://www.panderingpoliticians.com/2011/10/tea-party-vs-occupy-wall-street.html

      Delete
  3. What's the other source of revenue for the federal government? In 1935 when both individuals and corporations constituted about 15% of total revenue, where did the other 70% come from?

    ReplyDelete
    Replies
    1. Good question. Import tariffs were the largest source of federal revenue until it was surpassed by income taxes. As always Panderbear recommends checking multiple sources. You might even try Ron Paul's website. At least at one time he viewed direct income taxes as unconstitutional. He must have some alternatives in mind. ;-)

      Delete
  4. When I look at that chart I see something that I wasn't expecting. The change from equal in the mid-40s to now isn't steady at all as claimed in the article. The change is almost entirely within the period between WWII and ~1980. If you look since 1980 the lines for both are pretty stable: within a band of 5% either way of 45% for individuals and a similar band around 10% for corporations. I'm not what to make of that.

    ReplyDelete
    Replies
    1. You are correct to point out the apparent inconsistency between the chart and the "steady change" statement. If you add in payroll taxes, which are in fact federal revenue, the case for steady change is a big stronger. Nevertheless, I take your point.

      To my eye the the ratio of individual to corporate tax revenues peaked in 1984, 3 years into Reagan's first term, in 2003, 2 years into Bush II's first term, and then plunged with the onset of the Great Recession. So we can attribute the peaks to the Republican administrations and the dips to a Democratic president, Clinton, and to a recession.

      Thanks for leading me to take a closer look. All very interesting.

      Delete
  5. It would be interesting to see a 1%/99% breakdown on corporate tax rates. Are a handful of big bucks companies both bringing down the average, and enjoying a competitive advantage due to the higher taxes their poorer brethren pay?

    Reducing the top rate and broadening the base is still a good idea, but it should be done in conjunction with an overall increase in federal tax revenue from the corporate sector.

    ReplyDelete
  6. Nice to read your article! I am looking forward to sharing your adventures and experiences. Fresh start IRS

    ReplyDelete
  7. Much obliged to you for such an elegantly composed article. It's brimming with quick data and captivating depictions. Your perspective is the best among numerous. Stephen Coleclough

    ReplyDelete
  8. Wow i can say that this is another great article as expected of this blog.Bookmarked this site.. Tax Accountant San Diego

    ReplyDelete
  9. Really a great addition. I have read this marvelous post. Thanks for sharing information about it. I really like that. Thanks so lot for your convene. HBL Car Loan - ubl car loan

    ReplyDelete
  10. I appreciate you for this article. Tax rate is also increased in real estate business. house for sale

    ReplyDelete