New Report: Ten Reasons to Defend the Corporate Income Tax.

Updates:

Sept 2016 – New report disproves US corporations’ false narratives on tax – via Americans for tax fairness

Sept 2016Why we need to tax corporations now more than ever – via Kimberly Clausing

Aug 2016 – Corporate tax cuts: why the old analyses don’t stack up – via Fair Skat

New Report: Ten Reasons to Defend the Corporate Income Tax.

Trillions in public spending at risk as attacks on corporate tax intensify

Today the Tax Justice Network publishes a landmark report entitled Ten Reasons to Defend the Corporation Tax.

The short summary document is here, and the full document is here.

The corporate income tax is under attack. Nation states are scrambling to offer multinational corporations an ever growing feast of lower taxes, loopholes and incentives. Lobbyists and politicians constantly try to persuade us that the corporate tax is a bad, inefficient, unreasonable tax.

Yet it is one of the most precious of all our taxes.TJN square logo - NOV-2013

One of our ten points concerns revenue. Corporate income taxes have added up to almost US$ 7.5 trillion since the global financial crisis erupted in 2008, in OECD countries alone. This is nearly half of all OECD public health spending and around double the amount spent on public tertiary education, one of the fundamental underpinnings of corporate profits.[i] It is even more important for developing countries.

And yet the corporate tax is disappearing fast. Average headline tax rates are around half what they were in 1980, and on current trends will reach zero in the next two or three decades. We may not even have this much time, given the influence of the large accountancy firms and corporate lobbyists actively working to hasten its demise.

Since the 1970s multinational corporate profits have soared but the constant attacks on the corporate tax mean nation states are capturing a dwindling share of this bonanza. The result is greater inequality, higher taxes for poorer sections of society, distorted markets, and rising fears of plutocracy.

The attached documents outlines ten reasons why it is essential to defend the corporate income tax. In summary, these are:

  1.   Corporate income taxes raise essential revenue for schools, hospitals and the rule of law.

  2.   Less well understood is the fact that the corporate tax helps hold the whole tax system together: without it, people will stash their money in zero-tax corporate structures and defer or even escape tax entirely.

  3.   The corporate income tax curbs inequality and protects democracy. The tax charge falls largely on the wealthy owners of capital: without it, corporations and their wealthy owners free-ride off the public services paid for by others.

  4.   Corporate taxes enhance national welfare. So-called “competitive” tax-cutting is fools’ gold, particularly for the larger economies.

  5.   Corporate tax cuts, incentives and loopholes ricochet around the world. A tax cut in one place may suck capital out of others and prompt other jurisdictions to follow suit, in a race to the bottom where the only winners are the very wealthiest sections of society.

  6.   The corporate income tax is particularly important for developing countries, which rely more heavily on it than rich countries do.

  7.   Corporate taxes can rebalance economies. Corporations around the world are hoarding cash, not investing it. Corporate taxes harness this idle cash and put it to productive uses, via government spending on education, roads and other public services.

  8.  The corporate tax curbs rent-seeking. Because rent-seeking tends to be more profitable than genuine productive activity, the corporate tax falls more heavily on it.

  9.   Tax cuts and special incentives don’t stop at zero: they turn negative. In this race to below the bottom there is no limit on corporations’ zeal for free-riding off public goods and subsidies paid for provided by others.

  10.   Corporate taxes spur transparency and more accountable government. To collect the tax, states must put in place good tracking measures.
    Our document also addresses seven common myths about the tax: that it’s fine because tax avoidance ‘is legal;’ that taxes are ‘too high’; that tax is ‘theft’; that the corporate tax is unfair ‘double tax’; that it is inefficient and should be replaced by VAT; that corporate directors have a fiduciary duty to minimise tax; that the tax falls most heavily on ‘workers’; and that the Laffer Curve and so-called Dynamic Scoring are useful guides to policy.

In short, the corporate income tax is worth fighting for.

Please see the short summary and the full report.

John Christensen, Director of the Tax Justice Network, said:

“The corporate income tax is one of the best and most direct ways of taxing capital. On current trends the tax will soon disappear, ushering in an era of unaccountable, untaxed plutocracy and towering inequality in all countries.”

Nicholas Shaxson, the report’s main author, said:

“Corporate profits are soaring, as workers lose political battles with the owners of capital; as multinationals shake off pesky regulations; and as public assets are sold off. Yet taxpayers are seeing less and less of this bonanza, as corporations increasingly free-ride off public goods, leaving everyone else to pay the taxes they won’t. The result? Inequality rises, whole economies are thrown out of balance, and democracy and prosperity suffer.”

Louis Brandeis, a former U.S. Supreme Court Justice, said:

“We can either have democracy in this country or we can have great wealth concentrated in the hands of a few. But we can’t have both.”

Contact:

John Christensen, Director, Tax Justice Network
+44 7979 868 302

Nicholas Shaxson, Tax Justice Network
+49 170 356 5101

www.taxjustice.net

[i] From OECD Revenue Statistics, Comparative Tables, code 1210, corporate tax revenues as a share of GDP. (Data source excludes OECD members Chile, Hungary, Mexico, Poland and Slovenia.) GDP data sourced from OECD national accounts data, GDP, US$, current prices, current PPPs. Total for 2008-2013 is $6.2 trn, with an annual average just over $1tn/year. Adding estimate for 2014 gives $7.3 trn including 2014 . Education data from Education At a Glance, 2013 OECD indicators, and earlier years. The tertiary share has been stable at ca. 1.5 percent of GDP; corporate tax revenues have averaged 3.0 percent of GDP. Education data from OECD StatExtracts, General Government total current Expenditure, % of GDP.

 

 


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3 thoughts on “New Report: Ten Reasons to Defend the Corporate Income Tax.

  1. Gary Reber says:

    This report is written from a limited one-factor labor view point, which does not understand the means by which the formation of physical capital occurs or its concentrated ownership nor seeks the objective of broadening personal capital ownership.

    I agree that the corporate income tax should be retained and I would add that the tax rate should be significantly increased, with the caveat that corporations can eliminate the tax completely when they act in defined ways such as paying out all their profits as taxable personal incomes to avoid paying corporate income taxes and to finance their growth by issuing new full-voting, full-dividend payout shares for broad-based citizen ownership,

    As well, all tax loopholes and subsidies need to be eliminated.

    There are policies that can be adopted and executed to reverse the ultimate direction of collapse of the American market economy system. Such policies are based on the recognition that as the production of products and services changes from labor intensive to capital intensive, the way in which every human being––not just a few, but every person––earns his or her income must change in the same way. At the core of this quiet revolution is the understanding and commitment to broadening the ownership of productive capital.

    Starting with the business corporation, a legal entity created and sanctioned by state and federal government and judicial law, the government should provide tax incentives for full-dividend payouts to its stockholders, or alternatively dictate that from now on 100 percent of all profits be paid out fully as dividend payments to stockholders (thus, eliminating the corporate income tax), and be subject to progressive individual taxation rates during the short term. This would effectively prohibit retained earnings financing of new productive capital formation (reinvesting the corporate earnings already earned). The government could also limit debt financing by imposing some ratio formula to annual revenue under which a corporation could debt finance new productive capital formation with borrowed monies. Both retained earnings and debt financing, which represent approximately 98 percent of corporate finance, only enhance the ownership holding value of the existing corporate ownership class and do nothing to create new owners. Thus, the rich get richer systematically and capital ownership concentration is furthered, facilitated by financing further productive capital acquisition out of the earnings of existing productive capital.

    In place of retained earnings and debt financing, the government should require business corporations to issue and sell full-voting, full-dividend payout stock to more people to underwrite new productive capital formation, with the purpose of providing opportunity for new owners, both employees of corporations and non-employees, to participate in a growing economy. Of course, there needs to be a financial mechanism put in place that will guarantee loan risks; otherwise banks and lending institutions will not make the loans, and the system will continue to limit access to capital acquisition to those who already own capital—the rich. This is because “poor” people have no security or collateral, or sufficient income resulting in savings to pledge against the loan as security, and/or are disqualified on the grounds of either unproven unreliability or proven unreliability.

    Criteria must be created to qualify the corporations subject to this policy and those corporations that qualify overseen so as to insure that their executives exercise prudent fiduciary responsibility to generate loan payback. Once the guaranteed loans are paid back, the new capital formation will continue to produce income for existing and future owners.

    While tax and investment stimulus incentives are excellent tools to strengthen economic growth, without the requirement that productive capital ownership is broadened simultaneously, the result will continue to further concentrate productive capital ownership among those who already own, and further create dependency on redistribution policies and programs to sustain purchasing power on the part of the 99 percent of the population who are dependent on their labor worker earnings or welfare to sustain their livelihood. By stimulating economic growth tied to broadened productive capital ownership the benefits are two-fold: one is that over time the 99 percenters will be enabled to acquire productive capital assets that are paid for out of the future earnings of the investments and gain greater access to job opportunities that a growth economy generates.

    We need new leaders to advocate the need to radically overhaul the Federal tax system and monetary policies and institute proposals to get money power to the 99 percent of American citizens who now only rely on their labor worker earnings. Under the Just Third Way and proposed Capital Homestead Act’s more just and simple tax system, access would by provided to ownership of the means of production in the future to every child, woman and man by requiring the government to lift all existing legal and institutional barriers to private property stakes as a fundamental human right. The system was made by people and can be changed by people. Guided by the right principles of economic justice, “we the people” can organize and demand that the system be reorganized to make true economic democracy the new foundation for true political democracy. The result of this movement of new justice-committed leaders and activists will be inclusive prosperity, inclusive opportunity, and inclusive economic justice.

    Support the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/, http://www.cesj.org/wp-content/uploads/2014/02/jtw-graphicoverview-2013.pdf and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.

    Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/. See http://cesj.org/learn/capital-homesteading/ and http://cesj.org/…/uploads/Free/capitalhomesteading-s.pdf.

  2. Neill says:

    1. Corporate tax doesn’t generate much income. That vast majority of companies are pass through in the US. Shareholders are taxed on distributed earnings again anyway. You can only tax people not corporations.
    2. We already have zero tax corporate structures called REITs in the US. They come with requirements to distribute 90% of the income in a year.
    3. All taxes fall predominately on the wealthy. They are paying almost everything. Isn’t it time to have a solution that isn’t just taking people stuff?
    4. Of course governments don’t like tax competition. It stops raising taxes being the solution to all problems.
    5. You don’t get a job from a poor person. He might break your windows and steal your stuff though if he can’t get a politician to do it for him.
    6. Developing countries need capital stock. Taxing capital reduces stock. Developing countries need low capital taxes if they ever want to stop being developing.
    7. They wouldn’t hoard cash if the US wasn’t one of only a handful of countries to try and tax foreign corporate profits. What right does the US have to tax activity in a foreign country? Issue bonds in the US and keep your money abroad.
    8. There companies make money. That’s why your attacking them. If it wasn’t real there would be no money to take. People actually have to work so you can take their stuff right?
    9. Why would you pay corporations to do business? Your taxing the individuals who own the company. Incentives are always tailored to special lovely fields like movies and other rubbish.
    10. Transparency is all about shaming people for what money they make. Making money is evil but you want to take it because it lets you do stuff.

    • Nick Shaxson says:

      You will find that every single one of these points, except for the very specific one about REITS, is explicitly rebutted in the report.

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