Two Thoughts on Taxes

Some might not like an argument about politics but, lately, I’ve been enjoying them. I learn from them. It’s helpful practice to sharpen my arguments. I really don’t consider them political arguments (I think of it as public policy) but most other people do. And in that our political positions seem to be so fixed these days, we might as well consider them political arguments. Whatever.

During one of these debates arguments, my conservative friend said that we (the United States) should lower our corporate tax rate. I asked what the current rate was -- 30 something percent. (35% is the highest rate.) I asked what was typical in other countries -- no idea. (They’re all over the place. And complex too [duh]. China is 25%, Germany 29.8%, Norway 28%, UK 20-26%, Hong Kong 16.5%. Hong Kong seems to hold some magical place in conservative dogma. I forget why.) I asked what we should lower our rate to -- no idea. I suggested 10%. That seemed agreeable to my friend.

But then I had a question. If we lower our corporate tax rate from 35% to just 10% -- in order to make the United States more “business friendly” and to promote growth -- will corporations then pay taxes? Come now. Everyone knows that GE didn’t pay any taxes last year (along with 30 others including Boeing.) GE’s tax department is legendary. If a corporation is paying 0%, does it really matter if the tax rate is 35% or 10%? I’m sure a tax lawyer will tell you it does. After all, his job depends on it.

From there the argument tacks into how complex tax laws are and that we should simplify them. I agree. Let’s start over. Let’s wipe the slate clean. My friend didn’t think I was doing a very good job of arguing. What’s to argue about? We all think that taxes should be fair, equitable and understandable. Supposed we wave our magic wand and do just that? The slate is wiped clean. You (that means you the reader) can implement whatever tax system you think fair. Poof! It is so.

What happens the next day? You and I both know that there will be a herd of K Street cows shoving their way to the feeding trough on Capitol Hill. And we shall just start the whole process over. Again.

Perhaps this sums it up best, of all the articles I’ve read for this blog.

Simplifying tax code? It's as easy as 1-2-3

”When the U.S. imposed a national income tax in 1913, the law enacting it covered 400 pages. Today, the U.S. Tax Code requires an estimated 15,000 pages spread across 20 volumes.

Amazing, considering that most of the additions of the past 90 years have been loopholes.”

Just how many of those loopholes did you go to Washington and lobby for? Don’t dismiss that question so lightly. I’ve been to Washington and lobbied Congress. NATCA even used to call it “Lobby Week” before they thought better of it. I lobbied for better air traffic controller training. More controllers. Better equipment. I (somewhat famously, in a safety-geeky way) gave a few Congressmen handmade controller pens. That’s not like handcrafted luxury. It’s like homemade-because-we-couldn’t-do-any-better pens. Our two-ended controller pencils (one end red, the other black) wouldn’t write on the new strips so I (and others) took to making our own pens. A 10-billion-dollar budget and controllers had to make their own pens. But I’m drifting off course...

I never lobbied for a tax break. How about you? I’m betting you haven’t. And even the tax loopholes breaks you think are for you (mortgage deductions anyone?) were most likely written for a corporation or industry (house building, mortgage lending, bankers).

The point is, taxes are one of those things that won’t stay fixed. It’s a constant process. And currently, the system is geared so that corporations have the upper hand in how that process works. Your average U.S. citizens didn’t make it “complicated”. Corporations and rich people made it complicated.

To recap, a high tax rate is contrivance if no one is paying it. Corporations can scream that they are taxed at 35% -- “We pay our fair share!” -- while they pocket the money flowing out of the loopholes. (That works for that infamous 90% personal tax rate Reagan used to complain about too, by the way.)

The tax laws are complicated because the people with power want them that way. Nothing being offered in the political realm these days will change that. And even if it is changed (through some miracle) it won’t stay changed.

Don Brown
November 9, 2011