Corporate Tax Dilemmas

In a 1934 Appeals Court decision, Judge Learned Hand said,  “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.”
But still, the Judge concluded that the defendant in the case had illegally tried to dodge taxes by creating a new corporation that would diminish her tax bill. Agreeing, Supreme Court Justice Sutherland commented that the defendant’s strategy violated the intent of the statute.
So where are we going with this? To corporate taxes…

Corporate Inversions and the Corporate Income Tax

Because corporate inversions let businesses lower their exposure to U.S. tax rates through foreign mergers and acquisitions, the device has been condemned. However, as Judge Learned Hand indicated, sidestepping taxes is not necessarily bad.
So let’s say the corporate inversion might even be okay. Still though, it cuts corporate tax revenue and that takes us where we need to go. Instead of inversions, the problem could be corporate taxes.

• Corporations tell us that the tax is complex and “counterproductive.”
• The left-wing point of view emphasizes the loopholes that need to be plugged.
• On the right, the cry is to eliminate the corporate tax.
• Meanwhile, economists say the corporate tax is inefficient.
• And everyone recognizes that corporations are no longer the domestic entities they used to be. As multinationals with multiple homes, their tax regulations are antiquated.

The Bottom Line and Everyone’s Corporate Tax Rates

Here is an OECD (Organization for Economic Cooperation and Development) list. There are other columns in the original table and a list of footnotes qualifying all of the numbers. While the data below display actual rates, it is quite evident from the footnotes that one number tells a very small part of the story. For starters, learning more would include loopholes, tax credits and “subcentral’ tax rates within a country.

Our bottom line: In a Brookings Institution article about corporate inversions and the corporate income tax, David Wessel expressed the perfect bottom line. “Either we are going to tax income at the corporate level in ways that make the U.S. a place where companies want to have headquarters, invest and create jobs. Or we should give up and find a better way to raise revenue on the owners of capital. If we don’t, we’ll be watching other made-in-America companies join the expatriate parade and the corporate income tax and the revenue it produces will wither away.”