Corporate Tax Confusioin

At a conference yesterday, White House National Economic Council Director Larry Summers repeated a superficial critique of the U.S. corporate income tax that we’ve heard often from the Obama administration.

Politico notes that Summers suggested “that U.S. corporate tax rates are relatively low, despite complaints from U.S. corporations.” And they quote him: “If you look at taxes paid by corporations as a fraction of profits, they’re actually very low” because the U.S. tax code is replete with “evasion and avoidance.”

The Obama team’s solution to the supposed problem is to pile more complex IRS rules and regulations on U.S. corporations and to increase taxes on their foreign earnings.

There are lots of problems here. One is the implication that the U.S. corporate tax is uniquely subject to evasion and avoidance. It isn’t. Corporate income taxes around the globe are subject to large avoidance and evasion pressures because of globalization and technological advance.

That is one of the main reasons why virtually every other industrial nation has dramatically cut its corporate tax rate over the last decade or so. But the United States has not followed suit, and that’s why U.S. corporations are having to put large efforts into avoidance.

The latest data from KPMG shows that the U.S. federal/state rate is 40 percent–tied with Libya for the third-highest rate among 116 countries surveyed. The chart shows the average rate for the 30 OECD nations.

Summers may be right that U.S. corporate taxes are “low” when measured as a share of profits, although that calculation is more complex than you might think (For example, is he talking about domestic taxes divided by domestic profits, domestic taxes divided by worldwide profits, or something else?)

Anyway, Larry is referring to a measure of the average tax rate. But, generally, it is statutory rates that drive avoidance, and so it is the very high U.S. statutory rate that is helping to shrink federal taxes paid and thus drive down the average rate that Larry is worried about.

Note that lower statutory corporate rates over the last two decades have been associated with higher corporate tax revenues, as Figure 1 illustrates here. Thus, if Larry wants a higher average rate, he should propose cutting the U.S. statutory rate.

Summers apparently wants corporations to “help the country” by paying more taxes. But Larry must know that it is individual workers, consumers, and savers who actually bear the burden of the corporate tax. These people are “the country” and they would be helped by dramatically cutting the corporate tax rate and boosting the economy.

ACES Up Her Sleeve

This article is from American Spectator.

By Jeremy Lott & William Yeatman on 6.29.09 @ 6:08AM

Well before Barack Obama brought hope to the White House, Congresswoman Nancy Pelosi was adamant that something new and different and wonderful had arrived. In 2006, the incoming Speaker pledged that hers would be the "most honest, most open, and most ethical Congress in history."

At the time, we were skeptical -- to say the least. Our refusal to accept her rhetoric was roundly vindicated last week. That was when Madam-Speaker used every dirty trick at her disposal to coldly ram a 1,500 page global warming bill through the House of Representatives.

The Speaker chose to stifle the usual observances of deliberative democracy because open, honest debate would have attracted unwelcome scrutiny to her massive new energy tax.

Pelosi's legislation, the American Clean Energy and Security (ACES) Act, would raise the price of hydrocarbon energy sources like coal and oil thought to cause global warming, but which power 85 percent -- 85 percent! -- of the economic production in America.

A large energy tax during a deep recession is a political cyanide pill that 44 of Pelosi's Democratic colleagues refused to swallow. That almost doomed the bill and in fact would have killed it outright Friday night if eight Republicans hadn't voted with the majority of Democrats. (The final vote was 219 to 212.)

Likely there would have been many more Democratic "no" votes if Madame-Speaker and Energy & Commerce chairman Henry Waxman didn't find creative ways to shorten or skip every step of that "How a Bill Becomes a Law" song.

When fighting between the Energy & Commerce and Agriculture committees over the bill grew too intense, the farm lobby was bought off as were a lot of other Democrats. In exchange for votes, Pelosi and Waxman wrote countless paybacks, favors, and concessions into the legislation -- all without serious debate.

Indeed, House leadership crafted much of the ACES Act in secret behind closed doors. In the week before the final vote, it grew by a whopping 600 pages. Even that figure doesn't stress the urgent, secretive nature of the process. At 3:09 Friday morning, Waxman et al. introduced a 309-page "manager's amendment" to the legislation that was set for a vote later in the day.

Representatives would have had all of nine hours to study the text, assuming they went without sleep. The manager's amendment made even that impossible, because you had roughly 1,200 pages of text -- containing, at last count, 397 new government regulations and 1,090 new economic mandates -- followed by over 300 pages of text with no index that amended the previous legislation on paragraph by paragraph basis.

It would take a team of lawyers several days to sort out a mess like that.

We have to hand it to Oregon Republican Greg Waldren for his superb sense of understatement when he said he couldn't "imagine that anyone on this floor has read every word" of the ACES Act. That was the whole point of introducing the legislation under an extremely limited rule and only allowing three hours for debate on something that may take a good bite out of every American's pocketbook.

Pelosi and company had complained, rightly, that Republicans rushed some legislation through Congress. But her approach has been even less open to any kind of dissent than former Majority Leader Tom DeLay.

The "open" Congress that Pelosi promised back in 2006 would have allowed members of the House to voice their ideas about how to improve legislation. Fat chance. House leadership discarded all but one -- that's right, one -- of the 220 amendments submitted by House Republicans on the ACES Act, and allowed next to no time for debate. Georgia's Phil Gingrey complained on the House floor, "The Speaker and the Rules Committee have silenced the opposition."

They certainly tried to. If there's any silver lining to this, it's that congressional Republicans were incensed and unlikely to forget, or shut up about it. John Boehner used his privilege as Minority Leader to insist, over the befuddled objection of Waxman, on going past normal debate time limits and reading large chunks of the 11th hour amendment on the House floor.

And afterward, when Waxman requested unanimous consent to say a few celebratory words about his historic bill's passage, some Republican uttered those two magical words: "I object."

You, The American Polluter

This gem just in from Tuesday's press conference:

Obama:  "At a time of great fiscal challenges, this legislation [Waxman-Markey bill coming to the Hosue floor Friday] is paid for by the polluters who currently emit the dangerous carbon emissions that contaminate the water we drink and pollute the air we breathe."

Uh...does this have something to do with that New York soda tax? I don't even have the heart to raise the respiration part about oxygen in/CO2 out, trees take oxygen, subject us to the horrors of photosynthesis ... wash, rinse, repeat.

But heck at least he's got a really good, well thought-out reason for the biggest tax hike in U.S. history, even if he's also incorrect about who actually pays the energy tax: you do, as his administration, CBO, pretty much anyone who's bothered to look has pointed out. Of course, in Obama's mind it's not really a cost to you if the government gets the money, because you get a dollar-for-dollar benefit in... government (seriously). More please!

Quote of the day

Adding this new, massive, health care entitlement on top of the enormous entitlement mess we already have could not be more ridiculous and wildly irresponsible. The latest Trustees' Reports show that the current unfunded liability for Medicare alone is $89 trillion. Social Security adds another $15.1 in unfunded liabilities, for a total of $104 trillion. And that doesn't even count Medicaid. The entire American economy right now only produces about $14 trillion a year.

From "Washington's Plot to Explode Your Taxes" by Peter Ferrar ... (One of my favorite writers, by the way).