A Fairer Corporate Tax - NYTimes.com
HERE’S an idea: why not tax corporations as if they were natural persons, in accordance with their newly discovered rights of free speech? That move would solve any impending fiscal crisis.
Indeed, we used to do just that. For most of the 1950s, corporate income at large companies was taxed at 52 percent, according to the nonpartisan Tax Policy Center. The federal government, meanwhile, collected about a third of its revenues from this source. Today, thanks largely to the “reforms” ushered in by President Ronald Reagan, the ostensible tax rate on corporate income is no higher than 35 percent — and the corporate-tax share of federal revenue has fallen to about 9 percent.
For a view as to how this happened, consider General Electric. Back in the 1950s and early ’60s, when Reagan was a company pitchman, G.E. was a manufacturer of consumer appliances. It employed hundreds of thousands of people, and it paid millions of dollars in taxes every year. Now, it makes jet engines, wind turbines and other kinds of capital equipment, but its real profit center is financing the sale of these products overseas — because income generated here is tax exempt if it remains offshore.
In 2010 G.E. employed more than 130,000 people in the United States, and earned $14.2 billion, $5.1 billion of which was generated in the United States. And yet its American tax bill for that year, according to a report by The New York Times, was zero. (G.E. said in a news release last year that its “global tax rate” in 2010 was 7 percent, but did not disclose how much of that went to the I.R.S.)
Meanwhile, federal spending steadily increased, in line with the growth of the welfare state. As corporations lobbied and learned to avoid taxes, the government began to close the revenue gap with payroll taxes. These were negligible before the creation of Medicare in 1965, but they now account for more than a third of federal revenue — in effect, they replaced the income taxes once paid by corporations.
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