30 U.S. Senators, both new and old, are trying to explore ways to extricate ourselves from the current economic malaise and debt. These 30 Senators, headed up by Sen. Alexander of Tennessee and Sen. Warner of Virginia agree, as reported, on reducing corporate taxes. Apparently, this is an informal gathering of llke-minded Senators. Other solutions, I assume, are still open for debate and resolution.
What is the rationale for cutting corporate taxes ? American corporations, particularly the formidable ones, are sitting on cash with good balance sheets. At the same time, the corporate world is highly concentrated, and becoming more concentrated each day. We are less and less of a free market economy. Corporate CFO’s have become like investment bankers. Would not corporate tax relief accelerate this behavior and resistance to risk in the board rooms ?
High marginal corporate rate is 35%, and accompanied by numerous tax gratuities, usually referred to as loopholes. Historically, corporate tax in America has been higher, with a higher share of GDP. Currently, it is about 1.3 % of GDP and tax revenues on corporations is near 9 %. In the 1950’s corporate tax was 6 % of GDP. But, you don’t have to go back to the 1950’s for comparison. Just go to the 1980’s to get a historical perspective of corporate tax rates.
When you compare our corporate tax rate with all the deductions, credits, and deferrals; it brings our top-heavy economy into focus.
No doubt, some of these Senators thinking has been polluted by two fantastic myths : (1) that tax cuts will produce commensurate economic growth and (2) growth alone will solve our debt condition.
We do know, and, these Senators know quite well, that wealth is polarizing every day. I hope we don’t have to remind the Senators what this will ultimately mean for America.
Maybe these 30 Senators that want to cut corporate taxes are 30 reasons we are in the mess we are in.