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Sunday
Jan022011

“Only the little people pay taxes.” 

Testimony that Leona Helmsley, the Queen of Mean, said this helped convict her of tax evasion in 1989. Similarly, it's mostly true that only US companies that operate exclusively in America bear the full burden of US corporate taxes. The nominal federal "rate structure produces a flat 34% tax rate on [taxable] incomes from $335,000 to $10,000,000, gradually increasing to a flat rate of 35% on [taxable] incomes above $18,333,333." Link. Add State corporate income taxes, and the total nominal income tax burden on corporations operating only in the US is about 39%. Many purely domestic corporations are able to pay effective rates that are somewhat lower by taking advantage of investment tax credits, accelerated depreciation, and other "tax expenditures," but many firms are in kinds of businesses that don't generate such benefits and they end up paying the full nominal rates.

However, the main beneficiaries of our dysfunctional US tax code are multinational companies that can reduce their US tax liabilities to zero, near zero, or sometimes below zero (generating refunds). Thus, while "two thousand U.S. companies paid a median effective cash rate of 28.3 percent in federal, state and foreign income taxes in a 2005 study by academics at the University of Michigan and the University of North Carolina," according to Bloomberg, Google paid only 22.2% total and only 2.4% to the IRS. By using such common devices as the "double Irish" and the "Dutch sandwich," multinationals can arbitrarily allocate their income to low-tax or zero-tax jurisdictions like the Cayman Islands and their expenses to high-tax nations like the US and Western Europe. This isn't just Google; it's standard procedure, again according to Bloomberg.

So here's my question: Isn't it stupid and self-destructive to have a tax code that puts purely domestic American enterprises at a competitive disadvantage with foreign and multinational corporations? Why don't we stop doing this?

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Reader Comments (1)

Hard to disagree with you. Until we once again remember “The business of the USA is business” and act politically to make it so we will be at a disadvantage to the rest of the world. It also is ironic to me that socialism as a societal model only appears to be effective in relatively wealthy societies. It is the ultimate check and balance for the politically progressive and anti-business interests in the USA.

January 6, 2011 | Unregistered CommenterKlopp

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