Congratulations to the United States -- we now have the highest corporate tax rate in the world.
Japan was the highest until this month, when it lowered its corporate tax rate to 38.01% while America now proudly owns the top spot with 39.2% (including state and local tax).
However, 275 of the largest companies pay an average rate under 20%, and the stories of large multinational companies paying little to no taxes are too many to mention.
So, the question begs: if the average tax rate is so low, what is really the problem? The answer is in who has to pay the highest corporate tax rate in the world, because it certainly isn’t the big guys.
The problem is that decades worth of corrupt politicians have absolutely screwed the small guys who are the only ones who end up paying the world’s highest corporate tax rates. When we talk of high tax rates hurting jobs it is because the high tax rates are only paid for by small to medium- sized business, the exact folks who could use a tax break.
Large companies have bought off politicians for decades; it is why our tax code is 72,000 plus pages. Loophole after loophole has been given out for political favors year after year until we have created the world’s most complicated tax code.
The only answer is to scrap the entire system and make a flat lower tax. Imagine the benefit to small business if you could lower the rate to 25%. That's a true economic stimulus plan.
The worst idea I have heard is to “expand the base and lower the rate”. Here’s why: an average LLC in New York City pays more than 50% in taxes when counting state and local tax. How much more can you ask them to pay? Especially when the idea is to expand the base so you can give large companies who are paying a third of what an LLC is paying a tax break.
How does it make sense that a large, blue-chip company pays a third of the tax rate that a mom and pop business pays? All this talk of helping the little guy really sounds good in political speeches until the politician realizes that the little guy only has one vote and the big guys can fund an entire campaign.
Expand the base? A C Corp in the U.S. that is a small or medium-sized company that doesn’t have the ability to lobby in DC is the only group paying this tax. Should we ask that the small guys pay more? Or should we make a lower tax rate and ask that everyone pay it?
Politicians are not stupid, nor are they irrational-you simply have to understand their priorities.
A politician’s priorities are these:
1. Get reelected.
2. Get their party reelected so they get reelected easier.
3. See #1
Once you understand this than it is easy to see why a politician would hate a flat lower rate that doesn’t have the ability to create loopholes. If there was no way to give out corporate favors to large companies than how would that make it easier to get reelected (remember #1)?
No politician in his right mind wants to do the right thing and take away the ability they have to give a corporation the ability to buy them off.
So, we are stuck with the highest corporate tax rate in the world, and it is true that not everyone pays it -- only those without the influence to buy off folks in DC pay it.
Once you understand this (see #1), you understand that our tax system makes perfect sense and is very unlikely to change.