Lowering the corporate tax rate does nothing

This thread had nothing to do with Obama, in fact, Obama wants to lower the corporate tax rate too.

So I'll ask you, please list a singular example of me "deflecting" anything here.

In this thread or anywhere. Ever.

Thanks.

Oh, and the reason why I provide references is to show actual facts and data. Not simply shouting slogans or to make empty assertions with no basis in reality.

Reinvesting in new or more equipment to be more efficient or enter a new market creates new jobs.

You are looking at in increase in demand only but there are other factors/reasons you may want to consider when wondering why a company may higher someone.

Demand for what my business produces is out there. You have to work and quote competitive to win it especially when competing with shops in lower cost of living states which by the way are also ALOT more business friendly than my state. If I could keep more money in the business verse giving it to the state and feds I could reinvest in more equipment and in turn higher more workers.

Jack Welch gutted the R&D budget while at the helm of GE.  I know because I do work for them. Pratt and Whitney kept theirs up and sunk alot of dough into their new geared turbo fan engine that has been on the drawing boards for years. With new technology they were able to solve the stumble blocks that kept it on the shelf and now they are ahead of all jet engine makers with their technology.

 

Lower rates in other countries seems to be stinulating their economy

2012 has seen a remarkable uptick in a growing and disturbing trend of venerable American companies relocating offshore. Eaton Corporation, a century-old maker of electrical equipment, is finalizing its merger with Cooper Industries and, as Cooper itself did over several years, leaving Ohio for Ireland.

Earlier this fall, the water technology company Pentair left Minneapolis for Switzerland following its merger with Tyco. In January, insurance broker Aon was the first Fortune 500 company to change its domicile to the United Kingdom, moving its headquarters from Chicago to London.

The reasons corporations leave the U.S. are many but the common thread running through these moves is corporate taxes. In all three cases, the companies moved to countries with lower corporate tax rates, saving them millions of dollars each year. Eaton's departure from Cleveland is expected to save $160 million in taxes, while Pentair anticipates $50 million in "tax synergies," after leaving Minnesota and Aon looked forward to "significant reductions in our global tax rate," as it bid adieu to Chicago.

At 39.1%, the United States has the highest combined corporate tax rate in the industrialized world. It applies to all income, regardless of where on earth it is earned. U.S. companies must pay tax on foreign income to the nation in which it is earned, and again when that money returns to the US, with the IRS providing a credit for taxes paid abroad.

According to the non-partisan Tax Foundation, "Despite anecdotes regarding a few companies that exploit the dubious carve-outs in the tax code to minimize their tax liabilities, the results of 13 unique studies of the effective tax rate on corporate investment across the globe show that the average U.S. effective corporate tax rate, like the statutory rate, is nearly the highest in the world." The impact of not reforming the tax code is also self-evident; were US corporate taxes not so punishing, companies would not be fleeing America or parking capital abroad.

Economic theory does not support the premise of government taxation shifting the demand curve..especially for corporations.

I dont think GE really every raided their R&D too badly, their income statements would show a sharp decrease in R&D but I dont recall seeing that. Jack Welsh was a horrible CEO, I really dislike the guy..smug and annoying.

In the short term if a company or entity has a monopoly or competitive advantage then they can skimp on R&D but eventually it will cause the downfall of that advantage and generally speaking outside these extreme examples if a company fails to keep researching and developing their product line they wont be in business long.

Examples of foreign countries are not solid to me because we do not have proper context of demand..so yes if a corporate tax level is lower AND there is demand then for sure a corporation will expand. But if the demand is not there I dont care how much a company has in the bank or what tax rates are, if they do not need to spend then they wont. Show me a company who hires without the current or future demand needed and I will show you a company who will not be in business long term.

I also take issue with marginal tax rates that you quote..that is not the REAL rate, that is the rate before all the loopholes and tax magic is done. Show me 50 corporations that pay 39% taxes, I will show you 5000 that dont.

The reasons companies go offshore is not taxes, it is to find discounted labor. We discussed this before..what cost to a corporation is more, the cost of labor or the cost of taxes?

If you can cut out 10-20% of labor costs that is more than most corporate taxes of any public company..because labor is as a percentage of SALES..taxes are a percentage of PROFIT..big difference.

lower the corporate tax rate, end loopholes, and stop subsidies. 

rick,

What is the real federal interest rate corporations pay overall?

I dont think it is cumulative Federal is higher than 20%..if I were guessing I would say the net tax rate on S&P 500 companies is 15% or so.

If the total cumulative net of all taxes (state/fed/local) is 32, what does that make federal?

I think I want what everyone wants. 

I think if we were to cut the loopholes and freebies to any company larger than X, corporate rates would go UP not down..if we were to cut the meaningless stated rate from 31.9 or whatever it is to 22%, thats a HUGE cut..yet it would mean more net taxes on the federal level for most companies.

Absolutely

Plus Major League Simplification. The tax code does NOT have to be complicated.

Examples of foreign countries are not solid to me because we do not have proper context of demand..so yes if a corporate tax level is lower AND there is demand then for sure a corporation will expand. But if the demand is not there I dont care how much a company has in the bank or what tax rates are, if they do not need to spend then they wont. Show me a company who hires without the current or future demand needed and I will show you a company who will not be in business long term.



Demand does not drive hiring.
Demand does not drive economic growth or activity.
Your entire premise is government-centric, Keynesian hogwash.

Oh, and examples of companies that hired without current or future demand include Apple and Google. See that had employees prior to ever launching a product. Further, they had no demand. None.

For example, See this article on the myth of consumer spending.
(Business spending on capital goods, new technology, entrepreneurship, and productivity are more significant than consumer spending in sustaining the economy and a higher standard of living.)

https://www.mskousen.com/2010/05/consumer-spending-doesn%E2%80%99t-drive-the-economy-investment-does/

What Drives Economic Growth (Financial capital. Investment drives growth. Increased private investment – made in response to existing markets or emerging opportunities – creates new jobs, which increase local income, which leads to greater local demand for goods and services, which in turn leads to more private sector investment and continues the cycle of growth.)


Oh, and there was no demand for Facebook prior to it being launched, either.

wall

as I explained, you are too narrowly focused on the demand side of things and on big corps.

my personal example of my own company illustrates the main points I am making. Let my company keep more of its money and I will definitely reinvest in machinery, technology and most importantly, employees.

I do think the tax code should be re-written with alot of the loopholes closed....yes, this we agree on.

 

 

Research and Development stagnated under Welch’s tenure. GE had long been the leading patent recipient worldwide (obtaining over 1,000 in 1965), but today is not in the top 10 worldwide. By 1998, Welch was spending about 1.9 cents per sales dollar on R&D, less than half of the industry average, and one fourth of GE’s main competitor: German based conglomerate Siemens.

also, it is true that companies move for lower labor costs. BUT if you combine that and lower taxation then its a windfall. Unless of course you have increased quality problems or shipping costs or other often undocumented expenses that companies like to not talk about then the savings start to make them scratch their heads.

Thats why onshoring is happening and if we had a friendlier biz enviroment in this country many more would onshore as well. We also need to improve our infrastructure as its falling apart as we speak

Show me 50 corporations that pay 39% taxes, I will show you 5000 that dont

Based on what I can find, I don't think there are any actually paying 39%. Well, I guess there would be a few, but statistically not significant.

 Kevin Markle of Dartmouth College and Douglas Shackelford of the University of North Carolina at Chapel Hill: From 2005 to 2009, the effective corporate-tax rate in mining amounted to just 6 percent, while in manufacturing it was 26 percent and in retail trade, 31 percent.

Link: https://www.nber.org/papers/w16839.pdf

Here is a another source on this:

Effective Actual Corporate Tax Rates By Selected Industry 2007-2008

Construction 31%

 

Wholesale and Retail Trade 31%

 

Manufacturing 26%

 

Real Estate 23%

 

Transportation and Warehousing 19%

 

Mining 18%

 

Leasing 18%

 

Utilities 14%

https://www.accountingtoday.com/news/cch-compares-nominal-effective-tax-rates-64152-1.html

14,

Effective includes what taxes, we are talking FEDERAL taxes only, if you want to talk state and local well that is a completely different argument. Thanks for more and more cut/paste work..it is always so awesome.

lords, tell me something..and you know the answer quickly.

What saves a corporation more, a 2% cut in cost of revenue (labor/materials) or a 10% cut in federal taxes?

A 2% cut in labor to Apple would equate to a savings of 3.1 B a year while a 10% cut in income taxes would save 1.4 B

If taxes are the focus for a corporation rather than increasing revenues and cutting cost of sales, well that company is not being properly run.

If taxes, increasing revenue and cutting costs of sales are not focused on then a company is not being properly run

Any costs that "take away" from the bottom line are looked at and an attempt is made to minimize them all - you know this. Doesnt matter if its a fortune 500 or a mom and pop grocery store.

Focus on small biz not the big biz. Most of us aren't the ones who are looking to outsource like the big guys and we arent the ones with an entire division of tax accountants at the ready. Let my company keep more of its profits (that my employees help it earn) and they will benefit and we will continue to expand. I dont mind paying taxes as it is a necessary part of society but whenever theres a shortfall and the feds or states need cash we are the ones with the bullseyes on our backs.

Personally, I dont trust big corps...I think they are greedy and sleazy and will do anything for the mighty dollar all to please share holders and wall street.

 

lords,

The same concept applies for small businesses, the math works the same.

Cost of sales comes from the top..so if a pizza company is grossing a million a year and cost of sales is 40%, then a 2% reduction in cost of sales swamps a 10% cut in marginal tax rates.

If I net 15% of sales (which is pretty good) then taxes on that 150k would be 45k using that lofty 30% number, so saving 10% of that would mean you save 4500 bucks versus 8000 (400,000 X .02) in a mere 2% cost of sales reduction.

I think local business benefits more than the individual from municipal infrastructure and quality of local economy..taxes paid are not excessive as the use of economic resources is greater from a business than a family.

So the pizza company busts their butt to make $150K and the feds come in and take 45K......thats ALOT of dough to be leaving the business.  Do you know how much a pizza oven costs? I guess you see taxes as being "fair" where as I do not.

Dont forget the local business employ all those people who use the infrastructure.  

You can fixate on cost of sales all day but if you own a business you want to minimize ALL costs. You keep looking at only ONE piece of the pie.

All puns intended

 

also, curious where the cost of sales reduction will come from.

has insurance, energy, ingredients, labor costs (I hear $9 on the horizon maybe) or anything else gone down?

Where should the pizza biz trim the 2% fat?

Effective includes what taxes, we are talking FEDERAL taxes only, if you want to talk state and local well that is a completely different argument. Thanks for more and more cut/paste work..it is always so awesome.

Uh, the thread was started talking about effective rates.

And heaven forbid someone actually put data into the discussion.

so now when we hear about large chain pizzas cutting employees hours to 29 to avoid the cost of Obamacare we know why dont we

Trimming just 2% has a big effect while the opposite is true.

Thanks for the great example of why.....I hope those who dont understand why companies are doing such things will read your excellent explanation

A 2% cut in labor to Apple would equate to a savings of 3.1 B a year while a 10% cut in income taxes would save 1.4 B

Apple does not spend $122 billion in labor.

Your math is off. By a lot.