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By this Same Logic

Kevin Drum drums up an image that corporate taxes are low in America.  Indeed he is right about that. But what he is NOT right about is whether corporate tax rates are high in America. Here he is:

But whatever we do, don’t ever fall for the complaint that corporate tax rates in the U.S. are high. They aren’t.

In fairness to Drum, he mentions the point I am going to make vaguely in the paragraph above my citation, but then why end with that particular citation? It is one thing to say that, at the margin, corporations must pay 35% of its additional income out as taxes versus what Drum does – which basically adds up all of the taxes paid by corporations in America, then divides by all of their income, and points to average taxes paid as an indicator of distortions or burdens from taxes.

Which is, of course, completely wrong. If my marginal tax rate on income over $60,000 was 100%, and zero on income below $60,000, I am pretty sure I’d work for a salary of around $60,000 and then pay zero taxes. Would you conclude from the fact that the average taxes paid by Wintercow were zero that the tax burden from Wintercow was not as awful as some right wing zealot claimed it to be?

6 Responses to “By this Same Logic”

  1. Speedmaster says:

    Here’s a solid litmus test going forward for others. If you find yourself getting economics lessons/info from Mother Jones, you’re already deep into a state of error. 😉

  2. Harry says:

    The tax experts at Mother Jones should take a little time some day to read the financial section of a big American company’s annual report. If I were as expert as Speedmaster at HTML, I would provide a link to ExxonMobil and Merck. Both of those companies are now doubt at the head of many Most Evil lists. Both do business worldwide and have to deal with complex regulatory regimes. Both make money the old-fashioned way by earning it; or, I should say their hundred thousands of employees do, by selling products that make our modern lives vastly better. Both companies have found success for a long time.

    Now, because Exxon operates in every corner of the world, they have to deal with the cards they are dealt, going all the way back to when oil was discovered in, for example, Saudi Arabia. The Arab-American Oil Company (Aramco) was not a partnership between the U.S. Department of Energy and the King of Saudi Arabia. (Thank goodness.) Today ExxonMobil has to deal with many bad actors. If those bad actors were identified on a map like Wintercow’s map, it would be covered with big red splotches where wintercow lacks the tiniest red dot. Who knows how much money was paid to be allowed to drill where that amount did not appear as an expense on Exxon USA’s tax return? Would Mr. Hurley argue that ExxonMobil be allowed to reduce its taxes further by expensing a payoff to a Nigerian oil minister?

    This raises an unrelated but interesting question: has any reader ever gotten what the Secret Service would refer to as a Nigerian Letter? One never can be truly sophisticated without understanding this, and if Wintercow wishes, I will be happy to explain the scam in 100 words.

  3. Michael says:

    Saw your comments Speedmaster. I was tempted to comment on the blog that the elasticity of demand doesn’t matter; a consumer is also a producer (i.e. you can only consume what you produce, beg, borrow, or steal) . I always hated that marxist split that treats one like a bourgeois and the other proletariat. But I’d rather spend time with my wife than argue on Mother Jones.

  4. Harry says:

    Great point, or multiple great points, Michael. I would bet that all loyal readers of Mother Jones never learned the elasticity of demand concept.

    Michael provides us all great advice by saying he would rather spend time with his wife than arguing with the Mother Jones people. Notice he did not say he would rather argue with his wife than with Mother Jones people.

    File that one away, all you Rizzophile twentysomethings.

  5. jb says:

    Well as it happens I am CEO of a small C corp. we employ 8 people, so small potatoes. Because we are owned by a non-profit, there is no alternative ownership structure that is practical. Now, consider the current Fed income tax schedule:

    Taxable Income ($) Tax Rate
    0 to 50,000 15%
    50,000 to 75,000 $7,500 + 25% Of the amount over 50,000
    75,000 to 100,000 $13,750 + 34% Of the amount over 75,000
    100,000 to 335,000 $22,250 + 39% Of the amount over 100,000
    335,000 to 10,000,000 $113,900 + 34% Of the amount over 335,000
    10,000,000 to 15,000,000 $3,400,000 + 35% Of the amount over 10,000,000
    15,000,000 to 18,333,333 $5,150,000 + 38% Of the amount over 15,000,000
    18,333,333 and up 35%

    So the 34% rate kicks in at $75k. Our pre-tax earnings vary, but over the past few years have been between $0 and $200k. We think our future is bright, which means we will be paying 39% on each additional dollar earned if we are successful. The state tacks on another flat 10%. 50 cents on the dollar is gone.

    Now consider that most large C corps, at those rates, find it rational to hire an army of tax lawyers and lobbyists to find or to create loopholes to shelter taxable income in order to reduce their effective marginal rate to someting much lower. But when a good lawyer alone chargies around $400 per hour for regular corporate legal stuff, I can’t really justify playing that game.

    So… I kinda (ya think?) like the idea of eliminating loopholes, credits and various offsets and lowering tax rates to 20% for ALL C corps.

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