Growth: Our Only Solution – Part 1: The Corporate Income Tax

Just in case you haven’t looked at a TV, newspaper, website, telegraph, or unemployment line in the last couple years, I would like to point out that the United States has a bit of an economic crisis on its hands.  I think even most politicians in Washington would agree on this.  The questions arise when looking at what our country needs to do.  Members of both parties have presented various solutions, but judging by our country’s continued struggles no real progress has been made.  My solution can be summed up in one little four letter word – Grow.  The best way to get out of this present economic quagmire is to grow: grow our workforce, grow the GDP, and grow the proverbial pie.  But how?

Unleash the free market, unleash American ingenuity, and unleash the power of the American citizen. In a world defined by the expanded opportunities provided through the Internet and globalization, we have limited our citizen’s ability to innovate, create and compete.  Quite simply, America does not have a business climate that is competitive with the rest of the world, and this is a failure on the part of Washington. The United States currently has the second highest corporate tax rate in the world at more than 39 percent (the combined U.S. federal and average state rate is 40 percent). How can you expect a company to grow when the government takes nearly 40 percent of their yearly profits?  For those of you that don’t know how businesses work, businesses are constantly looking to grow, to expand their market, and to deliver more products to the consumer, but in order to do this they need capital. Company profits are invested back into the company to purchase new equipment and facilities, develop new technology, and yes even to hire new employees (create jobs). With almost 40 percent of their profits being taken by the federal government businesses are not able to invest in growth at the level that their international competitors can, so companies that have the ability to do so are moving overseas to more business friendly countries, and those who cannot are left to try compete with global companies that now have a strategic advantage over them. This often leads to companies having to downsize (cut jobs), cut wages, or cut benefits in order to provide their product at a competitive rate.

Now ask yourself, who does this benefit?  I’ll give you a hint; it’s certainly not the American worker who lost their job overseas or the small businesses left in America trying to survive, it’s the “evil corporations” that had the ability to move their work overseas.  Don’t blame the corporations though, they just did what they needed to do in order to survive, if they hadn’t moved their operations they would have just been overtaken by a global company that was already in a more business friendly country or willing to move.  Blame the United States government that has been unable to comprehend the business implications of globalization and the harm our internationally uncompetitive tax code would do to small businesses, workers, and the economy as a whole.  While countries across the globe have been slashing their corporate tax rates the United States has stubbornly kept our rates high.

I offer this, lower the corporate tax rates, close the politically charged loopholes in the tax code, and allow the average American business to compete with global corporations once again.   Do this and we might begin to see the growth this country needs to navigate its way out of our current fiscal debacle. (Note corporate taxes are not the only issue at hand in this and only changing this will not be sufficient to reboot our economy.  I will address other issues in coming posts.)

Stephen Quist