Republicans, under the leadership of President Donald Trump, hope to lower the US corporate tax rate to the lowest level possible, which could mean 15%. The GOP’s pro-business stances have long been a fundamental part of the Party’s identity, so this is expected. Many Republicans are so infatuated by the idea of an ultra-low corporate tax rate that they are willing to forsake fiscal responsibility. There are, however, others who continue to prioritize America’s fiscal health over frivolous giveaways for an already wealthy special interest group. There are also those who seek to reform the tax code to lower taxes for the benefit of all taxpayers in line with the economic needs of the Nation.
Unfortunately, Republicans cannot deliver a tax code that actually serves the interests of the United States nor the interests of the American People, because their views are upside. By catering to corporate interests, Donald Trump’s envisioned tax policies seek to stimulate the economy. Although the effective corporate tax rate is already close to 15%, making it easier for corporations to avoid taxes would allegedly offer corporations more money to invest in the economy. Business growth and development is not, however, driven by the amount of money a company has to spend. It is a product of increased demand. As such, consumers are the ones who need more money to spend, if corporations are to invest in growth.
With that in mind, one of the biggest debates among Republicans is over so-called pass-through businesses. Pass-through businesses are essentially entities that record businesses revenue as their owner’s revenue and vice versa, thereby forcing small business owners to pay the higher individual tax rate while making clever individuals eligible for the lower corporate tax rate. The current top rate is 39.6% for individuals and the statutory tax rate is 35% for corporations. Republicans want to lower rates for small to medium-sized businesses, which create the majority of jobs in the United States. This objective probably makes for a sound economic policy, yet others want to prevent the abuse of the lower corporate tax rate, which is an example where Republican priorities are upside.
The majority of tax dollars come from the wealthy, yet their burden, i.e. the impact their tax obligations have on their standard of living and spendable income, is far less than average-income to poor Americans. The same is true of corporations versus small businesses. Not only do corporations face a lower tax obligation than individuals, they have an opportunity to take advantage of numerous tax-deductions that pass-through businesses do not have. This gives corporations an unfair competitive advantage. Because many of these deductions act as incentives, which can push corporations to invest in businesses development and higher wages, eliminating them, whether or not to lower the overall tax rate, would be counterproductive.
The Republican debate should, therefore, forgo the issue of pass-through businesses and focus on individual tax rates. Wealthy corporations should not have lower tax rates than individuals. The US economy and US government, after all, exist to serve the interests of individuals, not machine-like, often transinternational corporations. A higher tax burden should placed on wealthier corporations, not individuals. The counterargument is the double taxation faced by corporations, yet the tax on investment income derived from a corporation is no different than payroll taxes paid on income derived from a job at a corporation. If anything, sales taxes are an example of double taxation on the earnings of all American taxpayers.
If Republicans want to reform the tax code to ease the burden of taxes and simulate the economy, they need to shed their corporate-centered views on taxes. They need to ease the burden on consumers. They need to ease the burden on smaller businesses that create jobs and contribute to their local economies. They need to make the benefits of corporate tax rates available to more businesses. They also need to stop favoring wealthy corporations as doing so gives them an unfair advantage. Taxes should not distort the economy. Favoring corporations gives them extra income to out compete their smaller, domestic revivals, whether or not they actually contribute to local, State, and National economies.
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