Corporations are not required to have America’s best interests at heart. This is business. And for many U.S. multinationals, there is little incentive to stay officially based in America and remain subject to a complex, confiscatory tax code. It’s not just that the U.S. has the highest statutory corporate tax rate — it’s 40 percent including federal and state levies —among advanced economies. Even once myriad tax breaks are factored in, the effective U.S. corporate tax rate is still tops. There’s no mystery as to why companies are going through all this trouble to escape the Treasury Department. It has nothing to do with a lack of patriotism, or the evasion of some sort of national duty, and everything to do with reducing costs and maximizing profits. That’s what businesses do — at least the ones that want to stay in business.
And let’s remember who benefits when businesses reduce their tax burden — perfectly legally! — by moving overseas. Mitt Romney was bang on when he said “corporations are people.” Workers bear 70 percent of the corporate tax burden, according to the Congressional Budget Office. American Enterprise Institute economists Kevin Hassett and Aparna Mathur have found higher corporate taxes lead to lower wages, with a 1 percent increase in corporate tax rates associated with a 0.5 percent drop in wage rates. No wonder the OECD found corporate taxes to be “the most harmful for growth” of all taxes.
Indeed, the corporate income tax is so harmful that we should just get rid of it. That would really help America’s struggling middle class. Economic modeling conducted by Boston University economist Laurence Kotlikoff finds “a very strong, worker-based case” for swinging the ax. Fully eliminating the corporate income tax, he writes, would cause “rapid and dramatic increases” in U.S. investment, output, and real wages. More investment means more jobs, higher productivity, and higher wages. Real wages of unskilled workers would rise 12 percent over the long term, and those of skilled workers would increase 13 percent. Now, Kotlikoff’s findings are probably at the high end of estimates. But they are tantalizing nonetheless.
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