American Elephants

Many people find the idea of a corporation confusing. The “Occupy” people couldn’t quite make up their minds whether they were most against “Wall Street” or against “Corporations” or if the two were synonymous, or which one had the most evil influence on government. Apparently they don’t teach simple definitions in college these days.

A corporation is a body of persons granted a charter, legally recognizing them as a separate entity  having its own rights, privileges and liabilities distinct from those of its members. Its purpose is to make money for the shareholders. Corporations do not exist to do good works, nor to provide jobs. They may do the former, and when they do the latter, it is a cost to them. When a corporation hires a person to do a job, it is in the expectation that the new hire will, after his salary, benefits, needs and future costs are deducted, will be productive enough to make money for the corporation. Productive people and productive corporations prosper.

That seems fairly simple.  Some few corporations manage to get special benefits for themselves from government, more get special regulation and interference in their business that makes their operations more difficult. Some corporations succeed, some fail, some are highly ethical and some are lemons. Sort of like human nature.  There is no reason to believe that corporations are especially evil.

The financial situation of the world is — not so good. Consequently all countries are taking a hard look at their finances, their debts, their obligations and their revenue.

Unbeknownst to most Americans, corporate taxation outside the United States has, for more than two decades, undergone a revolution.  As the Tax Foundation wrote last summer:

Our major trading partners have been moving toward a fundamentally different model of taxing business income. The basic tenets of this new model are lower tax rates and the exemption of foreign earnings. In the past four years alone, 75 countries have cut their corporate tax rates to make themselves more competitive.

Japan is scheduled to cut its corporate income tax rate on April 1, which will leave the U.S. with the highest corporate tax rate among industrialized countries.

Why, when every country is needing revenue, are so many countries abandoning worldwide taxation and slashing their corporate income tax rates? Two reports from the OECD which examined the impact of tax structure on economic growth concluded that “Corporate taxes are found to be the most harmful for growth.”

Corporations don’t really pay taxes. Taxes become a cost, which boosts the price of whatever goods they produce or service they perform.  Eliminating the corporate tax would be a good thing, but that’s not going to happen any time soon. Our leading presidential candidates all favor lowering the corporate tax. Obama acknowledges some of the problems, but comes up with proposals that would only worsen the disadvantage faced by U.S. businesses.

Some of the problems are a lack of  simplicity and transparency, no permanency nor predictability — businesses don’t know what to expect next.  The best tax systems have the least impact on economic decision-making.

The good news is that there is now a consensus among candidates that our corporate income tax system is harming U.S. competitiveness, economic growth and job creation.

See what your own candidates for Congress have to say. It would be very helpful to have a government that favored good policy on American business instead of just political posturing.  Businesses keep telling us why they are reluctant to hire. It’s because they don’t know what to expect and they are drowning in regulation.  Maybe we should pay attention.