Should corporations be taxed more heavily than they presently are? In short, no, they should not. In fact, corporate taxes should be lowered from their current level, which is 39 percent and the highest among developed nations, according to the 2014 Organization for Economic Cooperation Development (OECD) Taxation of Corporate and Capital Income report. The nature of incentives suggest the corporations headquartered in the United States are at a competitive disadvantage to other developed nations when it comes to taxation.
Last year, President Obama and Treasury Secretary Jack Lew urged corporations to practice “economic patriotism” in response to several companies moving their headquarters to more tax friendly nations around the globe. In answer to these calls, Ron Cohen, founder and CEO of Acorda Therapeutics, stressed the administration focuses on the symptoms of the issue, not the disease. Our current tax system is unbelievably arduous and complex. Instead of parading under the guise of economic populism where it may seem politically prudent to paint corporations as obscene profit seekers, we need to reform and simplify the tax code.
As previously mentioned, the U.S. has the highest corporate tax rate of any nation in the OECD. Large companies are moving their charters overseas to seek out relief from this tax burden. At this point, one might jump to the conclusion these corporations are seeking out cheap labor in Indonesia or Malaysia, but this is not the case. Walgreens, an Illinois based company, feels the pressure from its investors to move operations to Switzerland. Investors are pushing Walgreens to merge with Alliance Boots, a Swiss company. The Swiss corporate tax rate is 21 percent. According to analysts at investment banking firm UBS, Walgreens’ tax rate would to be 37.5 percent, while Alliance Boots is expected to be 20 percent.
Sure, casting companies who relocate to other countries with favorable tax markets as being unpatriotic may be politically expedient, but it ignores reality. As Bethany McLean, a CNBC and “Vanity Fair” contributor said about the situation, “we live in a world of global markets and very active investors.” These investors have a right to pressure management for profits.
Not only would a more welcoming tax environment encourage and invite new jobs to the U.S., a paper that appeared in Applied Economics and authored by Kevin Hassett and Aparna Mathur suggests “wages are significantly responsive to corporate taxation. Higher corporate tax rates depress wages.” Workers stand to benefit from lower corporate taxation.
As Arthur Brooks, president of the American Enterprise Institute points out, the issue should not be centralized solely on stopping these tax inversions. Lowering the corporate tax rate would allow the U.S. to become more competitive in global markets and work to bring in businesses to the U.S. while creating jobs and increasing tax revenue. Patch jobs for the current system may halt tax inversions, but they will not lower the tax rate to increase competitiveness on a global scale. We do not need temporary solutions to fundamental problems. We need to address the situation head on. We need policy that creates more opportunity, and that will happen when we create a more business- friendly environment.
