We've all been absolutely inundated with end of the world/the sky is falling talk about the debt ceiling and how to balance the budget lately. I just wanted to throw out a couple of quick observations on some of the things we've been hearing from our politicians lately.
The big thing that caught my attention and I wanted to address was this talk of tax "fairness". Barack Obama and his Democrat cronies have been making a big push for raising taxes on both individuals and businesses as part of an overall plan to balance the budget and this is the one issue that seems to be the biggest sticking point between the two parties. I would like to address both the individual and corporate taxes separately.
On raising individual taxes, Obama repeatedly pushes the notion that raising taxes means everyone would be "paying their fair share". However, he isn't pushing for a new taxation policy that would be anything close to fair. What Obama wants is to increase taxes primarily on those individuals making more than $250,000. In America, the number of households that makes more than $250,000 is around 2% or 1 in 50. (1) Interestingly, the top 1% of income earners already pay an extremely large proportion of all tax revenue at roughly 38%. (2) In addition, in 2009 less than half (49%) of all Americans paid any taxes and about 30% not only didn't pay taxes but actually had a net negative effect by getting money back via the EIC and other tax credits. (3) So, what we have is a small minority of Americans already footing the bill for the majority (51%) who pay no taxes. It is beyond comprehension how further increases in taxation to the minority already footing the bill could be seen as "everyone paying their fair share". Wouldn't it be much more fair if the majority who pay no taxes started picking up at least a small portion of the bill by paying at least some taxes? That's to say nothing of those actually taking money out of the coffers via the EIC and other tax credits. I'd say further increases in taxation on those making over $250,00 is the polar opposite of making "everyone pay their fair share". But that's just my opinion, I guess. To further increase taxes on the roughly 2% of Americans that already provide the lion's share of tax revenue amounts to nothing more than "classism" akin to sexism or racism.
On corporate taxation, I fear that Obama will drive our economy further into the ground by increasing corporate taxes. Actually, Obama has been pitching this idea as "closing corporate tax loopholes" but that's just a nicer way of saying "let's extract more money from corporations via a higher effective tax rate". Does it matter if it is a "closed loophole" or a higher rate when the net effect is that businesses pay more taxes? I think not. So, it's important to examine where we stand currently. As of right now, the US has one of the highest corporate tax rates in the world. (4) In fact, a substantial percentage of economists are pushing for decreasing the US corporate tax rate to stimulate the economy. (5) So, we have Democrats saying we should increase corporate taxes to balance the budget while Republicans are saying leave it alone or even cut the corporate tax rate to stimulate growth. Which side is right? And where can we look for answers? Let's look at Delaware to see if we can find some answers. Delaware has long had the reputation for being very tax friendly towards corporations and businesses in general. In fact, for companies incorporated in Delaware who don't do business in Delaware there is no corporate tax rate above the federal tax rate. (6) In addition, Delaware is well known to be extraordinarily business friendly in other ways including legally and regarding asset protection. What is the end result of such policies? Delaware is host to more than 50% of ALL the Fortune 500 companies. (7) I would say that there is no better place to look for guidance on how to grow a business friendly economy than Delaware. They have shown us the best way for about 100 years with staggering success. With their business friendly environment, they have managed to minimize unemployment which is currently at 8% for their state as compared to 9.2% for the US (8) Additionally, Delaware has used these successful business policies to limit the tax burden on individuals by eliminating sales tax and personal property taxes. (9) Ultimately, I fear that increasing the effective tax rate on corporations by "closing loopholes" will end up damaging our already fragile economy further. For these reasons, I think that the right thing to do is cut corporate taxes instead of raising them.
I'd be interested in hearing other opinions in the comments section below.
Links below for stats from above:
(1) http://www.factcheck.org/2008/04/americans-making-more-than-250000/
(2) http://www.davemanuel.com/2010/11/04/what-percentage-of-federal-income-taxes-do-rich-people-really-pay/
(3) http://uselectionnews.org/politifact-51-of-american-households-pay-no-income-tax/854468/
(4) http://www.politifact.com/virginia/statements/2011/jun/18/george-allen/george-allen-says-us-corporate-tax-rate-second-hig/
(5) http://seekingalpha.com/article/257977-high-u-s-corporate-tax-rate-a-barrier-to-economic-growth
(6) http://revenue.delaware.gov/services/Business_Tax/FilingCIT.shtml
(7) http://corp.delaware.gov/whycorporations_web.pdf
(8) http://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=state:ST100000&dl=en&hl=en&q=delaware+unemployment+rate#ctype=l&strail=false&nselm=h&met_y=unemployment_rate&fdim_y=seasonality:S&scale_y=lin&ind_y=false&rdim=state&idim=state:ST100000&tdim=true&hl=en&dl=en
(9) http://www.bankrate.com/brm/itax/edit/state/profiles/state_tax_Dela.asp
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