Wednesday, November 10, 2010

Lower Corporate Taxes Mean More Jobs, Which Means More Tax Revenue

Let's get something out of the way first.  I love corporations.  I think they're great.  The public tends to support the abstract of small businesses over that of big businesses, even though every big business was at one time a small business.  Moreover, I don't hate on corporations for making big profits, even obscene profits.  If a company does such an expert job at whatever they do to earn a profit of a billion dollars in a quarter, more power to them.  As long as the market is free of coercion, profits represent mutually agreed upon transactions that make both the buyer and the seller better off than they were before.  If a company makes $1 billion, it means that people like me and you are $1 billion better off than we were before.  Do you and I want to figure out how to build our own cars? mine the aluminum, shape the rubber for the tires?  Do you and I want to drill for oil in deep ass water in the middle of hurricanes? and I can't even make it to the bank before it closes.  We need corporations so we can pay them to do what they do best, and sell them the things we do better than them.

Partially because people don't like corporations, but mostly because states want more money, there is always talk about closing tax loopholes and collecting more money from corporations.  I'm all about abiding by the law, but there's some things to think about.

If taxes are high, businesses will try to avoid them.  For our purposes we'll talk about the legal ways.  For companies doing business in multiple states, they'll concentrate operations in the states that give them the lowest tax burden.  They will hire workers in those states, and those workers will create income, property, and payroll taxes.  States with high taxes will chase businesses out and actually lose tax revenue, even though they tried to raise the tax rate, a concept credited to an economist named Arthur Laffer.

Businesses want low taxes, but almost as important is consistency.  If a certain tax, fee, permit, or bureaucratic red tape exists, even if it's terrible, businesses can figure out a way to deal with it if they have certainty for the future.  Just so you don't think I'm making this crap up, I've found some examples of this whole concept at work for your reading pleasure.

When Daimler merged with Chrysler, they headquartered in Germany to enjoy an effective tax rate 23% lower.

Google, Facebook, and others use legal multi-national businesses to pay a 2% effective tax rate.

Iceland slashes corporate tax rate and enjoys higher tax revenue.

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