Thursday, June 2, 2011

Tax Gymnastics

Peter Goldmark’s article (Newsday)about corporations and taxes had three main points: that the US does not tax corporations enough; that corporations keep overseas profits overseas to avoid taxes and that creates jobs overseas; and that there are too many lobbyists and the tax code provisions are too complicated.

The last one is the easiest. Whatever the reason, the tax code is too complicated and has specific provisions that apply only to specific companies or industries. It must be simplified.

The other points can be disputed. Corporations do not pay taxes in any situation. Businesses obtain the money to pay taxes from their customers. A simple quiz is instructive: You own a business selling widgets. Tomorrow the tax on all widgets sold goes up 10%, what do you do? Right. You (the business) raise your prices at least 10%. So who paid the tax? Right again - the customer. The government got more money and the business broke even – assuming sales stayed the same which they probably didn’t – and the customers paid 10% more than they used to for their widgets.

His comment about overseas profits is confusing. There is no doubt that that overseas profits stay overseas because they are taxed if they are brought back into the country. He acknowledges that leaving this money overseas creates jobs overseas and his strong implication is that they should bring the money back and be taxed to pay their share. But bringing the money back would create jobs in this country. The current choice is between avoiding US taxes and creating jobs overseas or bringing the money back and paying taxes which leaves less money for job creation. A simpler solution would be to allow the companies to bring the money back, avoid taxes and create the jobs here. Use the money companies generate overseas to create domestic jobs. What a concept! Other countries funding US job growth for a change.

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