Sen. Mitt Romney (R-Utah), whose supporters cringed as they watched him swerve from trouncing President Barack Obama in one of the most devastating, lopsided debate victories in the history of presidential contests, to lacerating himself repeatedly with avoidable gaffes whose accumulation likely lost him the 2012 election, quipped in one of the worst of those stumbles that “corporations are people.”
But the establishment media actually couldn’t agree more; when it suits their journalistic narrative, these faceless machines that grind up their employees and shortchange their customers without shedding a tear take on human skin when reporters seek to expose them as tax dodgers.
At the crux of the issue is the fact that the tax code is not structured to serve its purpose: funding essential activities of government. Instead, it seeks by design to take lots of extra cash from those who can live large without it, so as to expand the leviathan of the state endlessly; meanwhile, it purposely excludes those at lower incomes from paying much of any income taxes at all—even using refundable credits to function as welfare payouts to them—so as to give them the incentive to provide political support for the big government that hands them so much largesse through channels outside the tax code, and on which they have become dependent.
The tax system holds the illegitimate position of omnipotent moral overseer of the people’s financial affairs—those with too much money being deprived of extra shares of it, those with too little being spared the wrath of the tax collector altogether.
The trouble with this arrangement is that, in the end, it actually hurts those of more modest incomes by preventing the kind of opportunity society that the free market can provide, teeming with good jobs available for those who find themselves unemployed; it disincentivizes self-reliance and pride in holding and keeping a job; it stifles the economic innovation that benefits all in society by its lessening of private investment; and it fosters deep resentment for the successful entrepreneurs and employers whose work and ingenuity should be universally appreciated.
The mainstream press is interested in none of this, but this month it jumped on the charge from the Big Labor-backed “Americans for Tax Fairness” that “a significant number of major U.S. corporations are paying their top executives more than they’re paying Uncle Sam in federal income taxes.” The innocent-sounding group is the scheme of operatives of the government trade union the American Federation of State, County and Municipal Employees (AFSCME), the National Education Association public school teachers union, and other major labor union executives.
In the same vein, President Joe Biden in his State of the Union address this month demanded that we “make big corporations and the very wealthy begin to pay their share,” charging that “in 2020, 55 of the biggest companies in America made $40 billion and paid zero in federal income tax.”
First off, in 2017, then-President Donald Trump signed into law the long-overdue step of slashing the corporate tax rate, which had been the highest of any major industrialized country and was killing the United States’ competitiveness. Even some of the most left-leaning, highest-ranking Democrats were strongly in favor of a major reduction in the corporate tax. You can’t have corporate competitiveness and simultaneously impose punitive taxes on corporations while rival countries facilitate low taxes that boost their own corporations in the global marketplace.
Moreover, generous pay for executives ipso facto means generous payments going straight into the U.S. Treasury in the form of the high tax rates that apply to those individuals in the upper incomes. “Straight” as in the mandatory withholding that employers are required to administer via the paychecks of their employees, withholding that were it not exacted upon workers, and they instead had to sign a quarterly check to the Internal Revenue Service themselves, would foment a nationwide tax revolt.
The fact of the matter is that the U.S. tax system is tilted heels over head against the middle and upper incomes and to give the less fortunate a free ride. The top-earning half of all taxpayers pay nearly 98 percent of federal individual income taxes, according to the latest figures from the non-ideological Tax Foundation; the bottom half pay the infinitesimal fraction that remains.
As to corporations paying little or no taxes in some years, the perception is misleading. When a firm loses money in one year, it can deduct the losses under the tax law from profits in subsequent years, all the way down to zero. It can also use U.S. tax credits to pay foreign taxes in other countries in which it operates, so as to avoid double taxation (in the United States and there). Plus the tax code allows corporations to deduct investments in equipment and machinery in the year they are purchased. Democrats and Republicans alike have supported these features in the tax code because, yes, even Democrats know that corporations’ success means providing and sustaining private-sector jobs for voters and maintaining a vibrant economy.
Within the Big Labor-backed report crying foul about supposedly outrageously low corporate tax payments is the admission that Tesla, for instance, carried forward the losses it had suffered in previous years.
The way out of the bad look of these sets of breaks for various behaviors that politicians have decided are desirable is to establish the kind of tax system the left has always resisted: the beautiful simplicity of one permanently low, flat rate that would set the economy roaring for as many years as the eye can see.
If the federal tax code really were all about letting fat cats get away with paying only pittances to Uncle Sam, you wouldn’t have company executives getting caught formulating elaborate subterfuges to avoid large tax bills. Only last year, for instance, Jason Cory, a 49-year-old residing in Florida who ran various information technology firms, was sentenced to more than 18 months in prison for placing $1.5 million in a shell company for nonexistent consulting services, attempting to evade more than $600,000 in taxes. And in 2022, Todd Kozel, who was CEO of a multinational foreign oil company, got five years in prison from a Manhattan federal court for unpaid federal tax liabilities on millions of dollars in compensation.
The Biden administration’s new budget, proposing to spend $7.3 trillion next year, features $5.5 trillion in tax increases that claim to target only the wealthy, including an increase in the corporate tax rate from 21 percent to 28 percent and a capital gains tax rate of 44.6 percent for top earners that would mean paying 60 percent in high-tax blue states. And because of the administration’s proposed lowering of some income brackets and other technical twists, the tax increases are sure to hit some small businesses hard. Plus, those who imagine that the armies of accountants and attorneys that big businesses employ won’t find a way to pass on those new expenses to consumers should change what they’re smoking.
It’s decades ago now since employers wised up and concentrated on voluntarily providing 401(k)s, profit-sharing programs, and other lucrative perquisites to their workers, giving them little reason to join and pay dues to often-radicalized unions. It’s time that the tax code was viewed through a similar lens, viewed as a means of giving the masses an economy that serves their interests most abundantly, instead of as a weapon for taking envy out on others.
