Corporate Tax Rates and Employee Wages
In an opinion piece in the Wall Street Journal on August 15, 2016, Kevin Bassett and Aparna Mathur, scholars at the American Enterprise Institute, explain why they believe that reducing the corporate income tax can be directly linked to increasing employee wages.
In this article they state, “Our empirical analysis, which used data we gathered on international tax rates and manufacturing wages in 72 countries over 23 years, confirmed that the corporate tax is for the most part paid by workers.”
The authors point out that a 2007 paper by Federal Reserve economist Alison Felix concluded that a 10% increase in the corporate tax results in workers bearing 7% of this 10% cost.
In Fixing the Corporate Income Tax, Addressing Fundamental Problems With the Code, Mercatus scholar Jason Fichtner confirmed that the burden of the corporate tax is borne by the corporate employees. Fichtner points to a Canadian study which estimated a 3-percent reduction in Canada’s national statutory corporate tax rate would create 100,000 jobs and draw $30 billion in additional business investment over seven years.
Fichtner also points out that there is evidence to suggest that every one percent of corporate tax reduces employee wages by one percent.
The bipartisan RATE (Reforming America’s Taxes Equitably) Coalition is arguing that the U.S. corporate income tax rate is creating many problems in the United States. They believe that the comments of Peter Morici, an economist at the University of Maryland, are directly tied to the high corporate tax rate:
“Since 2000, a much smaller percentage of adults are working or looking for work, economic growth is half the pace of the prior 20 years, and average family incomes are down nearly $4,000. Suicides and drug abuse are up . . . millions of recent college graduates are employed at places like Starbucks and living with parents, and home ownership is at a 50-year low.”
Common Sense Economics
To those of us who have to practice real economics, we cannot spend what we don’t have, it is common sense that taxes remove money from our accounts. Taxes reduce the amount that we can spend. If taxes are lowered, then we have more money to spend.
These same economics apply to corporations. They must pay all of their expenses from the income they receive after subtracting the costs of production. One of their expenses is the corporate income tax. If the corporate income tax is reduced, then the corporation will have more income to spend. This additional income will either allow the company to reduce prices, which is good for consumers, pay dividends to capital or invest to increase productivity, or pay higher wages to their employees.
Understanding these simple facts only seems to be difficult for the D.C. elites and some Members of Congress. Many of these elites, safely being paid by non-profits or governments, want to ignore economics and simply increase or maintain corporate taxes. They believe that by assigning the cause of lower wages to the exploitation by the evil corporations and business owners, they will continue to elect Members of Congress who will push to increase the size of government.
A Zero Percent Corporate Rate Is Best
If common sense economics is applied and if the many economists are to be believed, then the lower the corporate tax rate the better. Under the FAIRtax, the personal and corporate income tax/payroll tax system is eliminated. It is not 15% or 10% - it is 0%.
Apple and other U.S. corporations legally keep billions of dollars off-shore, some estimate as much as $2 trillion, to avoid having to pay the U.S. corporate tax. If this money was brought back to the U.S., it would either be used to reduce prices, invest in increasing productivity or payments to owners or pay higher wages to employees.
Many corporations are moving to Ireland because it has a 12.5% corporate tax rate. How many of these corporations would move to the U.S. if they could save an additional 12.5% and be in the biggest economy in the world?
If corporations moved to the U.S., then they would not only save the corporate tax but would be able to manufacture their products in the U.S. and not have to include the burden of payroll taxes and income taxes in the price of their products. Exports from the U.S. would be much more competitive.
All of these incentives will result in more U.S. jobs. As more and more people are employed, businesses will be forced to allocate more of their “profits” to paying higher wages and benefits to keep the employees. Unlike today, if there is a shortage of workers, then any company that does not pay higher wages will lose good employees to companies that will pay higher wages.
Rather than see more investment in other countries, investors will be drawn to the U.S. because of the zero tax rate on capital and the thriving U.S. economy.
Conclusion
It is difficult to understand how very intelligent people can fail to see what is in front of them.
It reminds me of the story about Sherlock Holmes and Dr. Watson who were on a camping trip.
Watson is awakened from a sound sleep by Holmes who says, “Watson, look up at the sky and tell me what you see."
Watson replies, “I see millions and millions of stars.”
Holmes then asks, "And what do you deduce from that?"
Watson thinks and says, "Well, astronomically, it tells me that there are millions of galaxies and potentially billions of planets. Astrologically, I observe that Saturn is in Leo. Meteorologically, I suspect that we will have a beautiful day tomorrow. Theologically, I can see that God is all powerful, and that we are a small and insignificant part of the universe. What does it tell you, Holmes?"
Holmes is silent for a moment. "Watson, you idiot!" he says. "Someone has stolen our tent!"
These economists and Members of Congress who ignore the FAIRtax are like Watson, they fail to see the tent is missing and ignore the fact that 0% is better than anything more than 0%.
Common sense should prevail. It is up to us to ensure that these D.C. Elites and mistaken Members of Congress are educated and understand that the best thing is not empty rhetoric but creating jobs and prosperity for all.
1040 Club and Your Donations (Investments)
When you make a donation to Americans For Fair Taxation “(AFFT”), you are making an investment. You could be investing the money in something else. All of us want to see a return on our investment. We want to see the investment used wisely and that the organization provides what it promises.
AFFT has been working for a long time to educate people about the FAIRtax. We are still running into people who have not heard about the FAIRtax, but what a difference it is from even five years ago. The biggest fear of the D.C. Elites is if the American people realize that they have been “had” and demand common sense reform like the FAIRtax. The Elites know that their “friends” in Congress will desert them if threatened with being thrown out of office.
There is going to be some sort of change in the income tax code in 2017. If AFFT is not demanding, on behalf of you, that Congress not just make a few changes but make real reform, then there will be more of the same and America will continue to lose jobs and more of our children will be living with us because they cannot find jobs.
By contributing (investing) $10.40 per month, you help provide a financial base to AFFT. If you can make larger contributions (investments) these will be used not for salaries, as we are all volunteers, but for the needed updates to our economic studies which will be vital in 2017.
Please go to this link to invest in AFFT and in your and your family’s future.
New FAIRtax Book
In last week’s FAIRtax Friday, Ron Maiellaro explained how America’s Big Solution was written and why it is an essential tool to help others understand the FAIRtax. Do you know someone who would like to learn more about the FAIRtax in a format longer than 140 characters at a time? Maybe something like a booklet that presents the basics of the FAIRtax? Well, America’s Big Solution is here! America’s Big Solution is a booklet written by Ocala volunteer Terry Tibbetts and can be purchased as an e-book for the Amazon Kindle, the Barnes & Noble Nook and Apple mobile devices thru the iBook store. And if you prefer a good old fashioned print copy, that’s also available at the above Amazon site.
We all know someone who would prefer a brief introduction to the FAIRtax and are not very active on social media. These potential supporters may be interested in this booklet which is less than 30 pages long.
In order to help the FAIRtax become the law of the land, we need to reach out to everyone possible. This booklet will hopefully reach another important segment of our society. Please do what you can to promote it.
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FAIRtax Power Radio
FAIRtax Power Radio is the brainchild of Bob Paxton, a Florida volunteer with previous radio experience and someone who is devoted to getting the FAIRtax passed into law as soon as possible. He invited Ron Maiellaro, another Florida volunteer, to join him. Together they are “The FAIRtax Guys” and they have created a series of podcasts that not only introduce the FAIRtax to listeners but also discuss the many different aspects of the FAIRtax as it relates to the economy, our Constitutional rights, politics, business and anything else that comes to mind. After all, the FAIRtax will affect and be affected by every aspect of American life.
FAIRtax Power Radio has been around for almost two years, but a few months ago, we had a new beginning. We moved our main distribution platform to Spreaker where you can listen to and download our 30 minute podcasts for free. We also decided to start from scratch and reintroduce the FAIRtax from the beginning to all our listeners.
In the first few episodes, you will hear details of the immense problems with the current income tax system and why it cannot be fixed. In fact, it’s so serious that even Thomas Jefferson gets involved in the discussion in episode 3. Then you’ll hear the most important aspects of the FAIRtax explained by Bob “Paxworthy” using his “You Might Be A FAIRtax Fan!” routine. We have interviews with various people such as a local business man, a Congressman and a member of the Board of Directors of Americans For Fair Taxation. We have examples of some of the wackiest tax deductions allowed by the IRS and the tax courts. We have analyzed the proposed tax reforms that the House Ways & Means Committee titled “A Better Way” and explained why it’s not “the best way.” A new episode is posted every Friday morning but you can tune in at anytime that is convenient to you.
If you’re an iTunes user, you can find FAIRtax Power Radio in the podcasts section of the iTunes store. Again, it is free and you can listen and/or download the podcasts at any time.
Both Spreaker and iTunes are available for your smartphone using the free apps. We are also working to get FTPR on other platforms such as iHeart Radio and TuneIn; more on those efforts at a later date.
Since our move to Spreaker and iTunes, we have increased our listenership but we need more, many more people to listen to FAIRtax Power Radio if we are going to force Congress to adopt the only REAL tax reform in front of them. YOU can help to inform the American people by not only listening to FTPR but also by sharing this information and these links with everyone in your contact list.
As The FAIRtax Guys say in every episode, When You Understand It, You’ll Demand It!
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