Browse the internet and you will find some interesting analyses about US, European and OECD corporate tax rates. The big question that arises in my mind when I study these analyses is this - who does rich America belong to, if not to America ? Once one considers tax loopholes, top American multinational corporations are paying lower taxes overall compared to their European counterparts. Now, corporate taxes do not form the largest component of tax revenues in the US, income taxes do. Still, when fiscal deficits are such a big problem, all the revenue sources need to be considered as regards their costs and benefits.
So, what should be the priority if one is trying to frame the right corporate tax policy for the US ? Should closing tax loopholes take priority ? Or should changing corporate tax rates take priority ? Corporations are already taking advantage of loopholes like tax havens and lowering corporate tax rates is unlikely to make them stop using these loopholes. As for the extra share of the profits they will retain if corporate tax rates are decreased, will it lead to increased investment in the US and will it be investment of a type that creates a lot of jobs ? Given their propensity to move production to low-wage countries and to countries with fewer environmental restrictions, and given the recent tendency of US financial institutions to invest money in risky, high-expected-return foreign assets, one should be pessimistic about the ability of lower corporate taxes to yield overall economic benefits for America. In fact, it may just end up lowering US corporate tax revenues without doing anything positive on the investment or job creation front. Therefore, closing of corporate tax loopholes looks like a better option for US policy makers. Structural factors like wages and other costs will figure prominently in the investment decisions of American corporations and tax rate changes that are unaccompanied by tax code changes designed to close corporate tax loopholes will most likely affect the revenue from corporate taxes and not achieve anything in the growth or jobs areas.
Now let's dwell on income taxes and rich America for a moment, shall we ? Rich America got income tax sops, thanks to the G.W.Bush Republican wave. I mean these weren't gigantic sops, if one goes by percentage changes etc. However, these cuts were large enough to increase deficits to an extent that exacerbated the debt problem so that now, the debt projections to 2025 or thereabouts look quite alarming. And what about jobs ? We had a long jobless recovery phase after the recession of the early 2000s. We now have one of the worst, if not the worst, job scenarios since the Great Depression. And what about social insurance ? Not impressive, if one compares to many European countries, for example. And where has the money from the lower taxes gone ? A lot of it has found its way to risky investments abroad through US financial institutions.
As rich Americans try to use their influence on the political establishment to bring about decreases in taxes or to extend previous tax cuts, and as they become more and more global in their approach towards investment and money-making, there is a high chance that these Americans will be less economically integrated with the society they are part of. Mr. J.K. Galbraith used the term " Affluent Society " to describe the rich about fifty years ago. In the early twenty-first century, should we start using the term " Ostensible Americans " to describe the new ultra-globalized rich Americans ? It has been quite a journey in elitism in the world's biggest economy from Mr. Galbraith's Affluent Society to the new ultra-globalized American elite. Not that globalization is bad per se. Not that rich Americans should forego good business opportunities abroad. But there need to be limits to how much rich Americans are allowed to avoid their share of the responsibility for fixing the country's finances while pursuing risky investments abroad. And it is also time to start thinking seriously about the limits to which businesses can be allowed to flee abroad in search of low wage rates etc. In other words, it is time to realize that the Americans with money to invest are not just competitors with the Europeans and the Japanese and the Chinese. They are Americans with responsibilities inside America. GDP growth without good job growth should lead to serious introspection in the country as to its long-term effects on American society. It is time to halt the slide towards ostensible Americanism.
by C. Jayant Praharaj ( send comments to [email protected] )
So, what should be the priority if one is trying to frame the right corporate tax policy for the US ? Should closing tax loopholes take priority ? Or should changing corporate tax rates take priority ? Corporations are already taking advantage of loopholes like tax havens and lowering corporate tax rates is unlikely to make them stop using these loopholes. As for the extra share of the profits they will retain if corporate tax rates are decreased, will it lead to increased investment in the US and will it be investment of a type that creates a lot of jobs ? Given their propensity to move production to low-wage countries and to countries with fewer environmental restrictions, and given the recent tendency of US financial institutions to invest money in risky, high-expected-return foreign assets, one should be pessimistic about the ability of lower corporate taxes to yield overall economic benefits for America. In fact, it may just end up lowering US corporate tax revenues without doing anything positive on the investment or job creation front. Therefore, closing of corporate tax loopholes looks like a better option for US policy makers. Structural factors like wages and other costs will figure prominently in the investment decisions of American corporations and tax rate changes that are unaccompanied by tax code changes designed to close corporate tax loopholes will most likely affect the revenue from corporate taxes and not achieve anything in the growth or jobs areas.
Now let's dwell on income taxes and rich America for a moment, shall we ? Rich America got income tax sops, thanks to the G.W.Bush Republican wave. I mean these weren't gigantic sops, if one goes by percentage changes etc. However, these cuts were large enough to increase deficits to an extent that exacerbated the debt problem so that now, the debt projections to 2025 or thereabouts look quite alarming. And what about jobs ? We had a long jobless recovery phase after the recession of the early 2000s. We now have one of the worst, if not the worst, job scenarios since the Great Depression. And what about social insurance ? Not impressive, if one compares to many European countries, for example. And where has the money from the lower taxes gone ? A lot of it has found its way to risky investments abroad through US financial institutions.
As rich Americans try to use their influence on the political establishment to bring about decreases in taxes or to extend previous tax cuts, and as they become more and more global in their approach towards investment and money-making, there is a high chance that these Americans will be less economically integrated with the society they are part of. Mr. J.K. Galbraith used the term " Affluent Society " to describe the rich about fifty years ago. In the early twenty-first century, should we start using the term " Ostensible Americans " to describe the new ultra-globalized rich Americans ? It has been quite a journey in elitism in the world's biggest economy from Mr. Galbraith's Affluent Society to the new ultra-globalized American elite. Not that globalization is bad per se. Not that rich Americans should forego good business opportunities abroad. But there need to be limits to how much rich Americans are allowed to avoid their share of the responsibility for fixing the country's finances while pursuing risky investments abroad. And it is also time to start thinking seriously about the limits to which businesses can be allowed to flee abroad in search of low wage rates etc. In other words, it is time to realize that the Americans with money to invest are not just competitors with the Europeans and the Japanese and the Chinese. They are Americans with responsibilities inside America. GDP growth without good job growth should lead to serious introspection in the country as to its long-term effects on American society. It is time to halt the slide towards ostensible Americanism.
by C. Jayant Praharaj ( send comments to [email protected] )