Why The U.S. Needs to Get Rid of the Corporate Income Tax

The corporate tax only empowers special interests, makes U.S. business economically lethargic and stymies future economic growth. 

Many years ago I sat in a large corporate business talking with the guy who ran the office. We were discussing political trends on taxes. I asked him what he would do as a boss if the corporate tax disappeared. When I say disappear, I mean not only the tax rate but also the accounting and legal complexities corporations must face in complying with the tax itself. He said to me, “Look over my shoulder at that entire staff of tax accountants…they would turn into just regular accountants managing our money”.

The corporate tax code in America has become a disaster. It is complex with special interests such as lawyers and accountants lobbying for more rules and regulations to be written so their careers are solidified. Add in the 35% rate is the highest in the world, compliance costs and the actual taxes hidden in cost to the consumer or employee. So what should America do? The answer is simple, get rid of it.

First thing pro corporate tax people will say is loss of revenue. Yes, the corporate tax brings in anywhere from $300 – $400 Billion in revenue each year, but only accounts for 9-11% of total federal revenue each year. Those losses will be washed out over the years with increased income/payroll tax revenue from business growth from not having this tax. I’m a little more cynical about “deficits” with our federal government anymore because the spending itself is completely out of control. For well over a decade I’ve railed against government deficits along with many others. Unfortunately the U.S. is in a state of no return and a government fiscal crash is the only solution. I don’t want a crash and want a managed decline in spending….but those aren’t the cards on the table.

Furthermore what makes the corporate tax inefficient is the complexity and costs associated in just complying with it. Here’s more from the TaxFoundation.org:

The cost of complying with U.S. business income taxes accounts for 36 percent of the total cost of the entire tax code, at $147 billion. Complying with the individual income tax costs another $99 billion annually.

Many businesses choose to become S corporations in order to avoid the second layer of tax that is applied to traditional C corporations. This, too, apparently comes with a high compliance cost. The compliance costs for America’s 4 million S corporations now total more than $46 billion annually, nearly $12,000 per firm.

When people think of “corporations” they think of these evil big businesses, well that is the farthest from the truth. Corporations are actually small businesses. Not every small business becomes an LLC. I know many small business owners who become S Corps. Getting rid of the corporate income tax would unleash almost $200 Billion for business to invest in other areas instead of complying with the corporate income tax.

Getting rid of the corporate income tax would free up almost $500 Billion to the business community. Would some accountants, tax lawyers and IRS agents lose their jobs over this? Yes….but remember, too many American jobs and businesses have been lost because of this tax which is what really matters.

 

 

 

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