Sunday, April 17, 2011

Abolishing Corporate Taxes

Writing for the Globe and Mail, Doug Saunders is arguing that we should abolish corporate taxes.

But corporate tax, by its nature, has a reverse Robin Hood effect: It is regressive. Big corporations have no trouble avoiding it. They can do any number of things, including acquiring other companies or shifting profits to overseas divisions, that make their balance sheets legally register zero profit. So small- and medium-sized businesses end up paying the full burden – a situation that chokes off entrepreneurship, reduces competitiveness and damages economic growth.

So ... in essence, Saunders is arguing that because of a swiss-cheese legislative approach to corporate tax law that we should abandon the idea entirely. I disagree with Mr. Saunders entirely on this.

There are a dozen things wrong with Saunders' reasoning here.

First of all, his comment about a "reverse Robin Hood effect" is a very narrow view of the situation. I will agree that there has been a growing concentration of wealth in the hands of the very wealthy. I do not agree that you can meaningfully place responsibility for that concentration at the feet of corporate taxation policy.

The real issue is that governments have allowed multinational corporations to become a law unto themselves over the last thirty years. Additionally, the multinationals have become very skilled at playing the governments off against each other by playing up fears of job losses and infringements upon national sovereignty. What really needs to happen is for the governments to get together and start creating agreements that tighten up the loopholes that the multinationals are using to sidestep the taxation laws in various countries that they operate in.

There is another strong argument against corporate tax: It gives businesses far too much power in politics, law and society. As “taxpayers,” corporations are given citizen-like rights in court and legislatures; as financiers of the state, they are given far too much lobbying power and influence over legislation

Again he's partially correct and grossly incorrect. The first point I have to make is that the notion of a corporation as citizens is a construct that has its roots in far more than taxation policy. I doubt that even if you were to offer to abolish corporate taxes that the corporations would accept having their voices relegated to the back seat any more.

The rise of corporate influence - especially in democratic countries - has severely weakened democracy. There is no doubt that it is necessary to take steps to curtail the abuses of power that are resulting from this. However, the solution to such ills as influence peddling, excessive lobbying and so on are not to be found in removing the taxation burden. These areas must be addressed with greater accountability on the part of both lobbyists and politicians. Essentially there must be double blind, audited records kept by all government officials who have decision making powers.

Lastly, if Mr. Saunders thinks that eliminating corporate taxes will somehow magically increase corporate investments in long term jobs and other related tasks, he is sorely mistaken. All it will do is make it still easier for the already wealthy to get even wealthier, and to do so entirely at the expense of middle and low income citizens. His fundamental point starts and ends with the dubious notion of trickle-down economics as practiced during the Reagan years - it wasn't terribly successful then, and I doubt that there is anything in place now that would change the outcome of such a structure today.

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