A higher corporate tax rate would hurt our economy. The Reuters tax article misses the mark.

Tax analysis is difficult, which is why it is usually best to leave it to the professionals. When amateurs try to pass themselves off as economists, accountants and lawyers, bad things happen. Reuters reporters posed this time around, and the expected biased analysis resulted.

Reuters item, who conveniently argues for the White House to want to raise corporate taxes, claims to prove that American companies pay lower taxes than their foreign competitors, and would continue to do so even under President Biden’s proposal to ” increase the corporate tax rate to 28% from the current 21%. It does nothing like that, in fact.

The recently released Reuters analysis is one of the 52 largest US multinational corporations. In 2019, there were 2.15 million corporate tax filers. This corresponds to 0.002% of all business filers. A small, infinitesimal fraction of businesses is hardly a representative sample when trying to estimate how much tax businesses pay.

Reuters also used data from 2020, the most unusual year for economic and financial data already because of the COVID-19 pandemic. Last year, several new provisions were added to the tax code to reduce taxes in order to relieve the economy affected by the virus. This strange choice of timing further distorts an already biased analysis.

It is also a mistake to consider only one year of a company’s tax bill. The United States taxes businesses on their average income over several years. To get a more accurate picture, you have to look at many years of tax bills.

The biggest flaw in Reuters’ analysis is that it made the amateurish mistake of using financial statements to analyze corporate taxes. As a tax foundation Explain, financial statement data is different from tax information. They use different standards and measure different things. Analysts should never use them to make a statement about a company’s tax liability.

Financial statements use accounting principles to measure the financial well-being of a business in a way that makes it possible to compare businesses to each other. That’s the key: they don’t measure taxes upfront like a real tax return would.

Tax returns are private (or at least are meant to be). It is incredibly difficult to determine how much a business is actually paying in taxes in any given year. This is why the pros generally refrain from analyzing tax policy through the prism of the tax bill of a particular company or even a group of them.

The truth is, what affects investment decisions, and therefore where companies ultimately find jobs, is the effective marginal tax rate. It is the additional tax on the next investment dollar. Reuters’ calculation is an average tax rate. Average tax rates tell us little about location decisions. The marginal effective rate is strongly influenced by the legal rate, which President Biden wishes to increase sharply.

Everything is relative in economics. When tax reform lowered the corporate tax rate to 21%, it made the United States a much more attractive place for businesses to invest because it significantly lowered this large marginal effective tax rate. If Congress passed President Biden’s proposal to raise it to 28%, it would make it a less attractive place for companies to invest. It really is no more complicated than that. The question for Congress and the President is why would we want to make the United States a less attractive place for business to invest?

It is also important to remember that tax reform significantly broadened the corporate tax base because he has raised a lot of corporate taxes. The rate cuts more than offset these increases. but it does mean that the rate hike is now hurting the economy more than it would have before the tax reform. That’s why the Biden administration shouldn’t get away with saying the 28% rate would be lower than it was before the tax reform. It’s a comparison between apples and oranges.

The Reuters article also argues that the United States has generous deductions for things like research and development, which lower taxes. But that’s the point! Deductions for things like research and development encourage our companies to take risks that allow them to deliver things like life-saving vaccines in record time. The dynamism of our economy is the envy of the world. Raising taxes on our businesses will blunt this dynamism.

Ultimately, taxes matter because they change incentives. Analysts may treat the numbers in a million different ways, but that won’t change the fundamental fact that raising business taxes from what they are now will make it less attractive for businesses to invest here, that is. that will ultimately hurt American workers. No need to complicate matters further.

About the authors

Curtis Dubay

Senior Economist, United States Chamber of Commerce

Curtis Dubay is Senior Economist, Economic Policy Division at the United States Chamber of Commerce. He directs the House’s research on the US and global economies.

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