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When Warren Buffet says corporate taxes are too low, we should listen.

"It's a myth that American corporations are paying 35 percent or anything like it," Buffett said, referring to the top marginal corporate tax rate in a CNBC interview. "Corporate taxes are not strangling American competitiveness."
Corporate taxes are too low for several reasons.  Firstly, they are doing little to improve our economy to warrant such favorable treatment.  As Buffett said, his corporation pays less in taxes than his Secretary.  Yet corporations have record profits, hirings are at multiple year lows, while hoarding a record $2.3B in cash.  

What are they doing with their cash?  Most large corporation are either boosting already record executive pay that disregards performance incentives, buying back their stocks to increase the value of their stock options, or looking for Merger and Acquisiton opportunities.  There is very little investment in either plant or equipment for organic growth that would boost employment.

Corporations are no longer the productive core of our economy, in other words, as economists such as Rutgers economic historian James Livingston points out—in fact, haven’t been for the last century.  Rather they have used their economic clout to buy legislation that limits or eliminates regulations to control them, and even the Supreme Court, since the Citizens United ruling that allowed unlimited corporate contributions.

“Between 1900 and 2000,” says Professor Livingston, “real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent."

Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor.”
Their power was at one time balanced by both government regulations and labor unions, the countervailing power pronounced by JK Galbraith in The Affluent Society.  They systematically decimated labor unions, as corporate ‘leadership’ councils methodically eroded their bargaining and organizing rights, while lobbyists flooded Congress to write anti-union legislation.  This is while 23 state legislatures to date have enacted Right-To-Work laws that were really right-to-not-pay union dues, even though union members enjoyed union benefits,  

Corporations have become too powerful, in other words, overriding the balance of powers enshrined in our constitution and laws that limited the power of any one economic sector over American lives.  The result has been successive asset bubbles since 2000, as well as record income inequality.  It is now well-known that since the 1970s wealth has been shifted from workers—mainly the 80 percent who are wage and salary earners—to the ‘rentiers’; major  investors, as well as Wall Street and corporate executives who control most of the wealth.  It is time to downsize their power in other words, and raising the corporate tax rate is a good place to start.

We now know how this happened,.   This is well documented in such books as Jacob Hacker and Paul Pierson’s Winner-Take-All Politics. It began in the 1970s, as Big Business began to organize to oppose what they saw as too much government—in reality regulations (including tax codes)—that restricted their profits.  Their main tool is of course their lobbying largesse.  Officially, say Hacker and Pierson, more than $3 billion per year is spent or donated to influence just federal legislation, a figure that has doubled over the last decade.

Two of the most visible lobbying entities are the U.S. Chamber of Commerce that advocates abolishing corporate taxes altogether, as well as the National Federation of Independent Business representing small businesses, which tends to lobby against any government regulation of business.  Both organizations’ memberships doubled during the 1970s.  

So corporate profits do not drive economic growth, says Livingston — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad.

“In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.”
There is another way to level the playing field between workers and corporations.  And that is to increase the incomes of employees, which have fallen for so many years.  But will it be any easier to roll back the plethora of anti-labor laws that have blossomed since the 1970s?  

Hardly, but then neither is closing the tax loopholes that have allowed Warren Buffett’s taxes to be lower than his secretary’s.  But we have to start somewhere if we want to create a sustainable recovery, rather than more busted bubbles.

Harlan Green © 2012


Do you think corporate profits are excessive?

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Comment Preferences

  •  How to raise taxes is the issue (5+ / 0-)

    Raising the base tax rate may not be wise since small businesses are struggling enough as it is.

    A better path is to close the loopholes that give large corporation with high profits the means to evade taxes, effectively raising them, and to provide investment credits to create jobs.

    What about my Daughter's future?

    by koNko on Sun Mar 18, 2012 at 06:38:54 PM PDT

    •  In Other Words Progressive Taxation. nt (1+ / 0-)
      Recommended by:
      Killer of Sacred Cows

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Sun Mar 18, 2012 at 07:44:56 PM PDT

      [ Parent ]

    •  You hit the nail on the head (0+ / 0-)

      There are good deductions and bad.

      I think we should leave corporate effectives rates about where they are-12%, certainly no more than 15%.

      But 70% top income rate and at least double cap gains to 30%+

      Incentivizing corporate capital flow to domestic investment is a real big deal. Targeting remerging tech and markets is key in creating good hi tech jobs that are not readily outsourced.

      Reward good community behavior. Investing in a new factory to make wind turbine components here in the US, tax break for you, a new factory to make solar panels, bingo, you get a sweet deal.

      This offsets cheaper overseas labor, and negates the cost of shipping which goes up as oil prices go up.

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Sun Mar 18, 2012 at 10:44:52 PM PDT

      [ Parent ]

  •  The president proposed cutting the top corporate (1+ / 0-)
    Recommended by:

    rate to 28 percent from 35 percent, addressing a long-standing gripe by U.S. corporations that the rate is too high.

  •  I would be happy if.... (0+ / 0-)

    They insisted on "collecting" the taxes that are already due at the current rate. Instead of allowing loop holes that enable corporations, making billions in profits, to pay little or no taxes.Maybe then, when every one is actually paying their taxes, we can talk about lowering the rate.

  •  Buffet did not say (0+ / 0-)

    his corporation pays less in taxes than his Secretary

    He pays a lower effective rate than his secretary.

    And as for the opening quote of your diary , all Warren is saying is that the top effective corporate rate is 12%. Which should be common knowledge, though isnt.

    The top income rate is 35%- effective about 20%, this should be common knowledge, in 1980 it was 70% and 22%, should be common knowledge, but it isnt.

    Historically speaking corporate rates peaked about 1952.

    Lets double cap gains and income taxes but I think we should pretty much leave corporate rates alone. This will engage the working and middle classes in the economy and disincentivize capital flow to speculation. Throw in tax break for domestic investment - especially emerging tech and markets.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Sun Mar 18, 2012 at 10:57:29 PM PDT

  •  the cash reserves are 2.3 Trillion (0+ / 0-)

    not Billions as you write. and the corporate tax rate really doesn't matter, given that amount of money to ferret out loopholes. Given the net contribution they now make to the people, I say raise the rate, and close the loopholes for all non-worker owned corporations.

    "I took a walk around the world, To ease my troubled mind. I left my body laying somewhere In the sands of time" Kryptonite 3 doors Down

    by farmerchuck on Mon Mar 19, 2012 at 04:38:56 AM PDT

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