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Mar 28 2011

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Lower Corporate Taxes=Higher Returns?

Lower Corp. Taxes=Higher Returns?
I saw this earlier today on CNBC.  Interesting tidbit after last night’s 60 Minutes story on companies domiciling overseas for tax reasons, like Transocean in Switzerland.

Companies in the S&P 500 paid about 20% versus the statutory rate of 35%.  About 1/3 of the 500 companies paid higher than the 35%.  Guess who those companies are?  Some of the highest tax payers?  Exxon Mobil and ConocoPhillips both paid more than 40% in taxes.  So much for all those allegedly ridiculous tax breaks the oil companies get.  Whirlpool hasn’t paid taxes in three years.  AT&T paid nothing.  GE paid nothing.

Look at the chart based on CBO numbers for 2008.  Only 12% of federal tax revenue came from corporate taxes.  I recently heard on NPR the number for 2010 was 8%, if I remember correctly, in the wake of the Great Recession.  Two seconds looking at that chart will reveal to anyone with common sense what we need to do to solve our budgetary issues.  Forget tinkering with corporate taxation.  Set it at 20%, eliminate loopholes, and forget about it.  We need to increase the wages of common folk, which will increase the payroll tax piece of the pie and thus get us on the road to keeping Medicare and Social Security solvent, and we need to redistribute the income tax burden to be more fair based on wealth.

Ignoring deductions, etc. it’s ridiculous that a single person making $106,800 a year pays 22% versus a single person making 200% MORE at $320,400 a year pays only 6% more at 28%.  Now let’s throw in the payroll tax that gets capped at $106,800.  Forgetting the 2% reduction in 2011, the $107k employee pays an additional 6.2% in FICA, thus the $107k employee pays 28% to the federal government.  How about the $320k employee?  That person pays the same FICA, of course, and thus in total only pays 2% more at 30% to the federal government. The first person has about $77k to live on and the other person has $224k to live on.  I haven’t even touched the subject of taxation on the ultra-wealthy who “live off of” dividends and long-term capital gains.  What about retirees, you ask, and dividends, etc.?  Simple, exempt below a comfortable level such as $52k (median household income level).  If someone is making hundreds of thousands of dollars or millions a year by selling off portions of a huge estate, it’s totally ridiculous they only pay 15% capital gains.  Warren Buffett has repeatedly pointed this out, that his secretary pays a higher tax rate than he does for this reason.

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