What if Corporations Paid No Taxes?

The United States is home to the second highest corporate taxes in the world. In 2009 many other countries decided to cut their corporate tax rates in order to foster more hiring and economic growth.

According to the Organization for Economic Coordination and Development, the United State’s Corporate tax rate is more than 50% higher than the next highest – Japan. A 2009 OECD study also points out that corporate taxes are the most harmful to economic growth.

President Obama is pressing for higher taxes on Corporations. If a company experiences increased expenses for any reason, that leaves less money to hire new employees or for the salaries of existing employees. It’s common sense. A company is going to try to make a profit, no matter what. If the government takes more out of their bottom line, the company is going to look for other places to cut or will take their business overseas.

It should be obvious what would happen if the marginal corporate tax rate was changed to 100%. The companies would fire all of their U.S. employees and head for another country. But, what would happen if the marginal, or even effective, corporate tax rate were zero?

Progressives would cry fowl, siting the “free ride” that companies are getting and the lost income for the government. But would that income actual be lost?

If a company paid no taxes, it would have more money to hire and pay its employees and more to invest in itself. Those investments might be more copiers, new tractors or fork lifts, office furniture, a new building – all things that would put more money in the hands of more tax payers. Cutting corporate taxes will create more and wealthier tax payers and would yield a multiple of what the original corporate taxation would have.

The opposite is also true.By hiking corporate taxes, companies will have smaller margins and will have to do something to re-balance the books. A study done by the EU found that a 1 percent increase in marginal corporate tax rates led to an almost 1% decrease in real wages.They will quit investing in equipment, quit training employees, may be forced to layoff staff and/or sell-off buildings into a terrible real estate market. All of that will reduce the amount of money the government takes in. So why would Obama keep demanding that we increase these job-killing taxes?

Perhaps the answer to fixing the economy is right before us. What if Corporations paid no taxes?