Corporate Tax Cut Needed to Spur Growth

There’s a lot of frustration out there about the slow pace of economic recovery. Unemployment remains high, people are unemployed longer than ever before – and if there’s one thing we can’t afford, it’s for people to be out of work. The few available jobs pay lower wages than workers earned in the past. Too many families face foreclosures and empty cupboards. Even if government spends money training people, it won’t do much good if business are not hiring anyway.

Economists have remarked that recent recessions have been increasingly tough to shake off. Corporations that grew too large to fail – once honored as blue chip companies – have been bailed out with billions in tax dollars in order to survive.

Maybe it’s time we concede that capitalism in the United States is chronically ill. Conventional remedies, like lowering interest rates, aren’t solving the problem. I realize this may sound like progressive blasphemy, but maybe we need to drastically cut corporate income taxes for small businesses.

So far, little else has worked. The President’s economic stimulus program has kept the recession from being worse, but there’s been no economic rebound. Strangely, corporations are sitting on about $2 trillion in cash, and banks are flush with money to lend at historically low interest rates. But businesses are skittish about spending money. They’re concerned there won’t be a demand for goods they would manufacture, because unemployment is so high and people are so strapped for cash. Businesses need a shot of confidence to open the taps and circulate more money.

Corporations spend a lot of money finding ways to avoid paying taxes. With lower tax rates, businesses would be less obsessed with tax write-offs and more motivated to manufacture and sell tangible products to make profits the old-fashioned way. They’d also be less likely to subsidize politicians to finagle new loopholes. Isn’t it better for 100 small businesses to have low taxes than to give one corporation with 100 employees a tax break? Isn’t the likelihood of job growth significantly better?

The IRS reported in 2007 that 4.9 million of the 5.9 million corporate income tax filers had assets under $500,000 – truly the “small businesses” that hire the most people and spark the economy most effectively. The 9,317 corporate filers with assets over $500 million each, however, generated over 84% of the corporate tax revenue that year.

So, if we eliminate the corporate income tax on over 5.8 million businesses with assets under $500 million, we’d lose about $7.5 billion in tax revenue. The result would be a remarkable signal to small businesses that good times are ahead. The remaining tax on huge corporations would also meet the Obama administration’s goal of discouraging businesses from becoming “too big to fail.” Gone, too, would be convoluted corporate tax breaks that favor debt over equity and corporations over individuals.

Some would argue this places an undue burden on individual taxpayers. But if the federal government is of, by and for the people, maybe the people ought to be the ones paying for the bulk of it. Maybe tax dollars would become all the more precious for lawmakers to spend. After all, an argument can be made that, if the sheep industry pays $100 million in taxes, they ought to get $100 million in subsidies for the sheep industry. Take that tax away, and so also goes their argument. Tax dollars paid by human taxpayers should benefit human taxpayers.

But the greatest benefit would be that companies would start hiring again. Our tax policies should encourage businesses to create jobs, with living wages. The average salary at Chesapeake is $71,000, and their workers seem pretty content. I suspect most people would rather have a good job and pay modest taxes than be unemployed with a low tax rate; their disposable income at the end of the day is what matters most.

Corporate profits paid as wages to workers and distributed as dividends to stockholders become personal income. As incomes go up, more taxes are paid, which will more than offset the $7.5 billion in lost corporate tax revenue and reduce the deficit. The expiration of the Bush-era tax cuts for wealthy individuals would provide even more tax revenues. As the deficit goes down, optimism improves, more people are hired, more money circulates, and we approach Nirvana.

Brighter minds can work out the details. But the old ways don’t seem to work anymore. If the economy doesn’t turn around, Osama bin Laden will have won his war against capitalism. If someone has a better idea, let’s hear it.