To: Mark Adams who wrote (3376 ) 11/1/2001 9:36:19 PM From: Mark Adams Read Replies (1) | Respond to Corporate Income Taxes In the 1990sitepnet.org Tax Rates by Industry What Happened to the Alternative Minimum Tax? Who Loses from These Low and Widely Varying Corporate Tax Rates? The general public. In fiscal years 1997-99, personal income tax payments grew by 28 percent and Social Security and Medicare payroll taxes on wages grew by 22 percent. But corporate income tax payments went up by a total of only 8 percent over the three years, and actually fell from fiscal 1998 to fiscal 1999. So one obvious group of losers from growing corporate tax avoidance is the general public, which has to pay more for—or get less in—public services. Disadvantaged companies. Almost as obvious is how the wide variation in tax rates among industries and among companies within particular industries gives relatively high tax companies and industries a legitimate beef that federal tax policy is helping their competitors at their expense. As the industry tables starting on page 17 detail, examples of these kinds of discrepancies abound:The U.S. economy. The fact that the government is offering much larger tax subsidies to some companies and industries compared to others is also poor economic policy. Such a system artificially boosts the rate of return on investment dollars for tax-favored industries and companies and reduces the rate of return for those industries and companies that are less favored. To be sure, companies that push for tax breaks argue that the “incentives” will encourage useful activities. But the idea that the government should tell businesses what kinds of investments to make conflicts with our basic economic philosophy that consumer demand and free markets should be the test of which private investments make sense. In fact, the good news is that tax breaks often don’t have much effect on business behavior. After all, companies don’t lobby to have the government tell them what to do. They lobby to get rewarded for doing what they would have done anyway. But there’s no doubt that making some kinds of investments more profitable than others through tax breaks will sometimes shift capital away from what’s most beneficial and into lower-yield activities. As a result, the flow of capital is diverted in favor of those industries that have been most aggressive in the political marketplace of Washington, D.C., at the expense of long-term economic growth. State governments and state taxpayers. The loopholes that reduce federal corporate income taxes cut state corporate income taxes, too, since state corporate tax systems generally take federal taxable income as their starting point in computing taxable corporate profits.6 Thus, when the federal government allows corporations to write off their machinery faster than it wears out or shift U.S. profits overseas or shelter earnings from oil drilling, most states automatically do so, too. The integrity of the tax system and public trust therein. Ordinary taxpayers have a right to be suspicious and even outraged about a tax code that seems so tilted toward politically well-connected companies. In a tax system that by necessity must rely heavily on the voluntary compliance of tens of millions of honest taxpayers, maintaining public trust is essential—and is endangered by the specter of widespread corporate tax avoidance.
