No Death, Just Taxes

Here is a common wrap against corporations: "Corporations need to pay their fair share of taxes." The current statutory federal tax for businesses is 35% for profits over $18.333 million. Including state income taxes, businesses across the U.S. pay an average tax rate of 39.27% (data circa 2008). That is the second highest average in the world.

But just because the statutory tax rate is ~39% that doesn't mean businesses earning over $18.333mm pay ~39% of their taxes to the federal, state and local governments. There are thousands of tax credits and deductions that businesses lobby for. That being said, the U.S. is the 6th highest in the world with an average effective tax rate of ~30%.

Within that ~30% average lays a large range…on average companies pay 30% of their income in taxes, yet other larger businesses pay far less. A big company like GE is infamous for paying very low taxes, while many smaller companies like Amtech Systems--a manufacturer of diffusion furnaces for solar cell manufacturers--pay 42% of their income in taxes.

Why the wide range? The simple answer is that GE can afford an army of tax lawyers to find loopholes, and they can pay lobbyists to make influence how the tax code and regulations are written.

Politicians and MSNBC pundits like Rachel Maddow and Chris Matthews (the “M&Ms”) love to blast big corporations like GE for "not paying their fair share". This is a sensationalist knee-jerk reaction. How can you really blame corporations for going to such extremes to avoid high taxes? Many of us would do the same thing if in their position.

However, the more profound response to M&M's overused Democrat/liberal/progressive rallying cry that corporations don't pay their fair share is really a question: what is the opportunity cost (i.e. cost of not pursuing the next best option) of Amtech's 42% tax rate?

Answer: Amtech is losing out on investing in new technologies, new processes, more production equipment and more research…the combination of which could lower the cost of solar power and increase society's total net benefit. Asian and European solar companies that pay lower taxes have more resources to find innovative ways to lower the cost of solar, while Amtech is stuck paying taxes that subsidize inefficient government programs (e.g. Social Security, farm subsidies, pensions for federal workers, a decrepit and wasteful education system, etc.).

Progressives frequently counter the above argument with, "corporations would have just used the money they didn't pay in taxes to hand out to their shareholders and executives". Once again, this is a typical knee jerk comments that is frequently used by the left. First off, and despite the negative connotation associated with "shareholders", many of us own GE stock via our retirement plans. That which benefits Amtech and GE also benefits us.

Secondly, the overlooked question is why does GE spend millions on an infantry regiment of tax lawyers and lobbyists? GE uses those resources so it can distribute cash to shareholders, invest in new technologies, grow markets and do their part to increase efficiency and prosperity.

I'm not trying to exalt GE and make them sound like saints. And I certainly wouldn't describe GE as proponents of free market since they have a big incentive to influences government policy to protect GE's interests from competitive free markets. All I'm saying is that GE is mature and has enough money to get around the tax code and good for them. Again, what’s good for GE is good for America. However what's not good is the billions of offshore profits sitting in foreign banks because repatriating those profits means paying %30+ taxes. This offshore money does America no good sitting in offshore bank accounts doing nothing.

How can Amtech pay less in taxes? Perhaps if Amtech knew the right politicians in Washington, could make many hefty Congressional campaign contributions, or lobbied, or started their own super PAC then Amtech could also fight to pay less taxes. But honestly, Amtech shouldn’t have to jump through all those hoops to compete with European and Asian solar cell manufacturers.

Now before Amtech goes through all the trouble of hiring tons of unproductive tax lawyers, or restructuring Amtech's legal structure to take advantage of offshore tax shelters, or getting friendly with dozens of politicians, or moving production to low-tax nations like Ireland...before they do all this, isn't there an easier way to avoid this whole taxation nightmare?

Yes, and this is my plea to President Obama, all 635 members of the House and Senate and the average citizens (especially the progressive, liberal left wingers). Wouldn't it be better to just lower the U.S. corporate tax rate and institute a simple, low flat tax of 20% (or even better--0%)? Let's get rid of all the confusing and inefficient tax credits, tiered tax rates, tax compliance headaches, costly tax expenditures, etc. Lower the damn corporate tax rate. Simplify the tax code by instituting a flat tax with no credits or deductions. I argue that doing so would: increase tax revenues by growing the nation's tax base, create new investment opportunities, create more jobs, and raise our standard of living.

America’s current corporate tax rates and tax code hurts economic growth by inhibiting the Amtech's of the world, while simultaneously enriching the GEs of the world (thereby increasing plutocracy).

Change starts with people, not politicians.