Abolish the Corporate Income Tax

In the recent election cycle, “job outsourcing” overseas was an issue as were demands that corporations “pay their fair share of taxes.” What are the facts and why are these issues important to the job needs of American workers and your investment accumulation and retirement funding plans?

Senatorial candidate and now senator-elect David Perdue of Georgia was attacked unsuccessfully for “outsourcing jobs to China” when he was charged with rescuing several underperforming corporations. Castigating business, Senator Bernie Sanders (I-VT) asserts, “Despite record breaking profits, corporations bring in less than 9% of federal taxes. It’s time for tax reform.” Tax reform is needed, but not as Sanders would propose.

According to politifact.com, in 2013 corporations accounted for 10% of the federal tax take. The rest came from individuals, 50%, social insurance and retirement taxes, 36%, excise taxes and other, 4%. In other words, the largest source of federal taxes were derived from taxes on work and investment. Here’s a proposal. Let’s create jobs, boost taxable worker pay, and increase stock values in retirement plans so that when money is taken out, taxes rise. How? Cut the corporate tax rate to zero!

No one starts a business and takes a risk unless they believe they will make a profit. Investors will not risk capital unless they see a profit. The first goal of a business is to make profits and return risk-capital to the owners. What else can it do with profits? Pay people, provide benefits, pay for outside services, invest in or lease plants, other real estate, equipment. A company can invest in new product design and research. Advertise products and services. This is the kind of healthy economic activity needed to grow our economy and create jobs.

A company can pay dividends to shareholders. It can buy back stock to increase earnings per share, thereby growing stock values. Does this just benefit the maligned 1%? No. It benefits small investors, Mom and Pop Main Street, people saving for retirement in their IRAs, 401(K) plans, union plans, and mutual funds.

Think about it. With no income tax, companies of every ilk would have more money to spend on economic activity, all of which creates tax revenue on the part of people who benefit. The U.S. would be the world’s hottest tax haven with our rule of law, political stability, and global currency. The billions in corporate profits stashed overseas would come home and go to work.

As to outsourcing, if a company goes broke because it cannot compete, everybody loses. But how often do you hear about insourcing? Auto plants moved from high cost northern states to the southeast. Boeing is building 787 Dreamliners in a non-union plant near Charleston, SC, where labor unrest is not a factor and costs are lower. An Australian company is building ships in Mobile, Alabama. A number of American and foreign companies have “outsourced jobs” to the southeast, Texas, and other states where taxes are less and entrenched unions are not a factor. Who said “taxes don’t matter”?

Despite competition from cheap labor abroad, a 12/20/2012 report from NBC News pegged the U.S. as remaining a manufacturing powerhouse. Said NBC, the U.S. produced 18.2% of the world’s goods versus China at 17.6%. Now, with costs rising in Tier 1 Chinese coastal cities, more production is being outsourced from China! The Chinese company Haier Group makes refrigerators in SC. Lenovo is making ThinkPads in NC. In September with a listing on the New York Stock Exchange, the Chinese e-commerce firm Alibaba Group set a record for the biggest IPO in the world.

Airbus will build A320 airliners in Alabama. Honda, Toyota, Hyundai, Kia, Volkswagen, Michelin, among others, have expanded auto-centered activity in the south.

Money goes where it is best treated. Taxes matter. If we made America the world’s most favored tax haven, money will flow to the USA. Jobs will be created. GDP will grow. The money not drained off of business in taxes and payments to tax lawyers will be put to other uses, and the multiplier effect will more than make up for corporate tax revenue lost. Corporations don’t pay taxes, people do, whether in lower wages, lost jobs, and diminished opportunities. It is time for tax reform!

Lewis Walker is President of Walker Capital Management, LLC. Certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with Walker Capital Management, LLC. lewisw@theinvestmentcoach.com