Higher corporate taxes increase economic growth, so why do investors hate them?


I’ll make an educated guess about you as a reader of Barron: You believe in low taxes and a small government. But what if the assumptions that led to your beliefs are wrong? What if a strong, well-funded government was a necessary component of business success? What if raising corporate taxes is good for economic growth? Would you be prepared to accept the irony?

As CEO of Omidyar Network, a social change company that seeks to shape a new inclusive economy where markets serve the interests of all people and society, I understand that taxation is a complicated and often emotional issue, which generally lacks irony. Tax policy tends to be an approximation of the collision of two fundamental but divergent concepts that guide American society: the role of individual freedom in relation to the common good. Beyond that, taxation is also one of the most visible representations of the role of government in our lives. We see this unfolding in real time as Congress continues to debate President Biden’s Build Back Better plan and how to pay for it.

And for many Barron readers, I suspect you might think the package should be small enough to drown in a tub. I read the myriad of your critiques in the comments section of this post when the Omidyar Network published their call to reinvent capitalism last year and a compendium essay on these pages. But listen to me carefully: I believe not only that government can and should be a force for good, but also that tax policy is one of the best tools we have to create a fair society that creates opportunities for all. and which can, if properly structured, build a much-needed social trust in our society, fostering a better sense of fairness and reciprocity.

I am not alone in this point of view. According to a September 2020 survey, “For the first time in the Gallup Trend in 28 years, a majority of Americans believe the government should do more to solve the nation’s problems… 54% of American adults support increased government intervention. “

From a practical standpoint, our government is responsible for maintaining the infrastructure of our country. Not just roads and bridges, but also the health, safety and opportunities of all Americans. Government is also what makes our market economy possible, providing stable currency, enforceable contracts and property rights, well-regulated capital markets, and consumer protections. Our government has played an even bigger role during the Covid pandemic, keeping families and small businesses afloat in these difficult times, just as it has done in times of war and other emergencies. past.

The point is, many businesses would have a hard time going it alone without our government (and the taxes that fund it). From supporting R&D to the building blocks and institutions that ensure the rule of law and enforceability of contracts and private property, our government and tax policies champion business opportunities and provide the infrastructure necessary for success. new businesses.

Omidyar Network was founded by entrepreneur Pierre Omidyar, the creator of eBay. We believe our tax policies should help new businesses get started, and we share the goal of fostering a vibrant and vibrant start-up economy. Like the Tax Foundation, we also believe that our tax code should be seen as a vehicle for accelerating economic growth and dynamism.

At best, tax policy can motivate companies to hire people who would otherwise have difficulty finding work, including veterans and people with disabilities; encourage them to invest in communities that have been neglected and left behind; bringing jobs home from abroad; promote clean energy to face our growing climate crisis; and help small business owners get started and succeed.

But the share of businesses in federal tax revenue has fallen by two-thirds in 60 years, from 32.1% of federal revenue in 1952 to 9.9% in 2012, according to the Office of Management and Budget.

Why? It is not because companies are less profitable or less competitive. (In 1952, after-tax corporate profit was 8.6%; in 2012 it was 11%.) On the contrary, our tax code has now enshrined a series of loopholes and exemptions that not only allow , but encourage companies to avoid or evade taxes. .

In 2020, 55 of the nation’s largest and most profitable companies, including FedEx, Nike and Archer-Daniels-Midland, paid no federal corporate taxes, according to the Institute for Taxation and Economic Policy. While it may be legal, not many people can agree that it is fair.

And despite all the talk about getting our country’s economy back on track, growth over the past 60 years has in fact higher when corporate tax rates were higher. Ironic, right?

At Omidyar Network, we believe that policymakers need to fill in the gaps and strike the right balance in our corporate tax policy so that businesses can remain competitive while meeting their obligations to the wider community for the benefit of most. Americans. We do not blame companies for taking advantage of laws as written to minimize their tax obligations. They behave legally and rationally within the rules of the system. But we believe the laws themselves should change.

In a new paper, we outline four core principles that we believe should guide tax policy:

  1. People with less shouldn’t pay more than people with plenty.

  2. Wealth should not be rewarded more than work.

  3. Big business should pay their fair share.

  4. Tax expenditures should be directed towards the future we want.

I hope Congress follows these precepts when it reviews current legislation and tax code changes to strengthen our economy and ensure we have the government we deserve. The specifics of restructuring our tax code can take many forms, but I firmly believe that it can simultaneously make our society fairer and create the conditions for businesses to thrive. And as Fredrick Douglass said, “At a time like this, a scorching irony, not a compelling argument, is needed. Can you too accept the irony of the tax hike?

Guest comments like this are written by authors outside of the Barron’s and MarketWatch newsroom. They reflect the views and opinions of the authors. Submit comments and other comments to [email protected]

About Hector Hedgepeth

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