Posted on 12/09/2006 5:26:19 AM PST by DredTennis
Cut Corporate Taxes to Boost Wages?
To boost future wage growth, Democrats have suggested raising the minimum wage, making college more affordable, and tweaking the tax code to try to prevent U.S. companies from moving jobs overseas. Here's another idea, one it seems that only the GOP could love–but it was actually adopted by Spain's Socialist Party-led government earlier this year, Germany's Social Democrats in 2000, and Britain's Labor Party in 1999: Cut corporate income taxes.
The combined top federal, state, and local corporate tax rate in the United States is 39.3 percent, the second highest (after Japan) among the 30 countries of the Organization for Economic Cooperation and Development and 10.7 percentage points greater than the OECD average. Heck, even the welfare-state-loving Scandinavian countries–Sweden, Denmark, and Norway–have a combined average corporate income tax rate that is more than 11 percentage points below the U.S. rate.
How would cutting corporate taxes help workers? Because of the increasing global mobility of capital, owners can escape taxes by shifting capital overseas. That hurts domestic workers because "their productivity falls and they cannot emigrate to take advantage of higher foreign wages," as a new report (PDF) from the nonpartisan Congressional Budget Office explains. The study concludes that domestic labor bears slightly more than 70 percent of the burden of the corporate income tax. What's more, a 22-country study from the conservative American Enterprise Institute found that higher corporate tax rates lead to lower wages, with a 1 percent increase in corporate tax rates associated with a 0.7 to 0.9 percent drop in wage rates. "Lower corporate taxes will lead to higher wages over time," says Kevin Hassett, a coauthor of the study ...
(Excerpt) Read more at usnews.com ...
I remember $.25 a gallon gasoline.
I think that we have been sold a bill of goods about big oil just like we were sold a bill of goods about "W". No longer will I trust either.
Big oil will sell out America to whom ever will provide it with the greatest profit.
I think that you will find that the cost of labor for most companies is not their prime cost, construction being a good example of an industry that is labor intensive.
And, it is important to note, that it is not the taxes alone that are the problem. Very often the costs associated with dealing with the tax structure are many times the amount of the taxes actually paid! The whole thing (income tax system) needs to be thrown onto the ash heap of history where it so properly belongs!
Most economists who have studied the matter seriously will tell you that the corporate income tax is a bad idea -- even when the economists in question are leftwingers. That factoid probably explains why socialist governments in Europe have reduced corporate tax rates. But is there a chance the demagogic Dhimmi-Qrats who now lead the U. S. Congress would ever be seized with such economic sanity? I'd say not likely, because they much prefer stoking the fires of class warfare.
"Big Oil" take ALL the risks associated with bringing that gallon of gasoline to the retail market and profits about $.10 - $.15 on that gallon of gasoline while government takes none of the risks and provides absolutely nothing to the process, except to make it far more costly than it would otherwise be, get's about $.48. Now tell me again who it is that's doing the gouging?
Surrender,there is no escape--
the price of labor is but one small consideration in the overall equationLOL!
lewislynn
LOL!!
As a business owner, what would you do if corporate income taxes were abolished altogether, as in the FairTax?
That our economy remains as strong as it is despite these obstacles continually amazes me. I run - more correctly, I am - my own business and the level of additional paperwork and government meddling that would be inflicted on me if I were to expand to the next level are daunting. I'm not a lawyer or an accountant, but I would need to hire both of those before I could get to hiring anyone to actually provide services to my customers.
Imagine where we could be with a sane system wherein economic policy written was written by trained economists instead of demagogic lawyers and their lobbyist friends.
Try doing a little googling and discover the "profit margin" of big oil. Then discover the profit margin of other industries. I think it will do you some good.
I believe this discussion has been hashed out pretty well on FR. It is simply that I have gotten to the point that I question any data provided by the oil industry. Call me a skeptic but after the past couple of years I think lying may well be SOP for the oil business.
I'll be most interested to read your explanation.
Standing by.
Skepticism is healthy. Fine.
But think about this:
If you are in the business of selling dirt and you sell a million dollars of dirt every year and your profit margin is 10% then you make 100,000 dollars. If the price of world dirt doubles because of strong demand and your sales double because of the price your profit will also double if you maintain your profit margin. Why do you think the oil business is any different?
Yes and no.
Corporations do not pass on corporate income taxes. To say they do would be to propagate the myth that they do.
What they pass on are taxes that are embedded in their cost structure.
But their income taxes are paid out of profits, e.g. EBITDA (earnings before income taxes, depreciation and amortization).
There is no practical way to price a product without a profit margin.
And I remember 5 cent candy bars and 10 cent a gallon milk. And just how much were you making a week back then?
Better yet how much were you paying in taxes?
The biggest thieves are the government.
I don't think thief clearly defines the government.
What makes you think an estimate of their income taxes is not also figured into their pricing ?
A corporation is responsible to its shareholders as the owners of the business. Those owners have invested money and must see a return commensurate with their risks beyond what a riskless investment would return. That means the minimum after-corporate-tax ROI is predetermined by the market forces acting on the shareholders and the share prices, just as the prices of the company's products is subject to market forces of the consumers and the competitors' products.
The long and short of it is that the shareholders won't buy shares in a company that doesn't offer an ROI beyond what a safe investment would offer.
This means a corporation cannot simply wait until the end of the year to find out how much taxes it will owe, and the shareholders get whatever profit is left. They estimate the cost of the taxes they'll owe as part of the process of determining prices. They must, or they won't know whether to go ahead with a particular product or even whether to stay in business or not.
Corporate income taxes are not simply paid out of whatever happens to be left over as profit -- unless the corporation is being run by incompetents. The after-tax return is protected as much as possible while determining prices, and that means the corporate income tax is passed along just as any other cost -- resulting in higher prices, lower wages, or lower returns to shareholders, with their effect felt in that order.
Corporations cannot embed their ***income*** taxes into their pricing because they will be left with a larger profit (EBITDA) from which they must pay income taxes.
It becomes circular reasoning otherwise.
Shareholders never know what a ROI will be when they purchase stock unless dividends are paid and the stock price in stable. Earnings and growth are what shareholders pay attention to. ROI is more for initial founding investors or bondholders.
Where the misconception comes into play is sales taxes are passed on but those are not linked to corporate profits. The only way a corporation can get around this tax structure is to offer rebates. But rebates are not so common.
Corporations do pass on other taxes though as part of their cost. For example, corporate property taxes, payroll FICA contributions, state and local taxes they pay for services and products they use, etc.
Here's a simple example @35% rate:
Revenue 1000
Expense 900
Profit 100
Income Tax 35
If they try to embed their income tax into pricing, then we get:
Revenue 1035
Expense 900
Profit 135
Income Tax 47
but although estimated profit net taxes may increase, their products are less price competitive. Hence, actual revenues from sales may not be as high as estimated.
Corporations will charge what their markets will bear.
Baloney! In fact, they MUST do so or go broke as they have only ONE source from which they must pay everything from the electric bill to their income taxes and that is their SALE RECIEPTS. They spend loads of money making accurate assessments of what their tax liabilities will be for EXACTLY this purpose.
Corporations will charge what their markets will bear.
That is true and the problem is that with current U.S. tax law (the corporate income tax in particular) in place OUR producers are not able to compete effectively in many markets because we cannot border adjust our prices while others can and do.
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