corporate income tax

Hey, Barack Obama, businesses are moving overseas because of a terrible tax climate made worse by you

There’s been a lot of talk lately from President Barack Obama and administration officials about “economic patriotism.” They say that corporations shouldn’t be allowed to move overseas to escape paying the corporate income tax.

“Even as corporate profits are higher than ever, there’s a small but growing group of big corporations that are fleeing the country to get out of paying taxes,” President Obama said at a stop in Los Angeles on Thursday. “They’re keeping, usually, their headquarters here in the U.S. They don’t want to give up the best universities and the best military and all the advantages of operating in the United States. They just don’t want to pay for it. So they’re technically renouncing their U.S. citizenship.”

Earlier this month, President Obama suggested that Congress (read: Republicans) lack “economic patriotism” to work with his administration on issues the country faces. Treasury Secretary Jack Lew dropped the same term in a letter to Senate Finance Committee Chairman Ron Wyden (D-OR) as he urged Congress to pass legislation to end corporate inversions.

“What we need as a nation is a new sense of economic patriotism, where we all rise or fall together. We know that the American economy grows best when the middle class participates fully and when the economy grows from the middle out,” Lew wrote in the letter to Wyden. “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”

Credit Unions Fight Back against Big Banks

After enduring months of salvos from the banking industry, credit unions are fighting back.

The above video from the Credit Union National Association, one of the industry’s two major trade groups, launches credit unions’ campaign to enlist their 96 million members nationwide to beat back lobbying efforts by the American Bankers Association and the Independent Community Bankers of America that would strip them of their tax-exempt status.

Credit unions have been exempt from the federal income tax ever since it was created in 1916 by the 16th Amendment, on grounds that they are “organized and operated for mutual purposes and without profit.”

This reliance on community bonds and mutual interest has allowed credit unions to serve populations that historically have had difficulty accessing bank credit, whether it be immigrants and other individuals of more modest means (highlighted in CUNA’s video by the striking fact that, though 40 percent of Americans belong to a credit union, they hold only 6 percent of the country’s financial assets) or particular small business niches that banks have tended to eschew (in recent years, credit unions have had notably strong penetration among organic farms and taxi drivers, for instance.)

And for as long as credit unions have enjoyed their exemption, banks have been lamenting it as an “unfair” advantage. The charge does not stand up to scrutiny. An April 2013 report from Yang Liu and Richard Anderson of the Federal Reserve Bank of St. Louis examined whether credit unions’ tax exemption offered them a competitive advantage over banks, and found that the “evidence does not permit any sharp conclusions.”

SOTU: Obama wants to cut deficit while “investing”

If you were looking for a substantive discussion of the problems facing the United States, last night’s State of the Union address was a let down.

President Barack Obama spent 62 minutes speaking in mostly generalities and explaining to us how great government spending is, but also warning the Congress that he will veto bills containing earmarks – special projects that are inserted into legislation that go bypass the normal budget process. President Obama also pledged to take measures to cut spending by enacting a five-year freeze on non-defense discretionary spending. While he may consider this to be some great feat, Obama’s proposal will only save $400 billion during that time. This is a drop in the bucket compared to the $6 trillion in budget deficits projected by the Congressional Budget Office.

Obama noted in his speech that non-defense discretionary spending represents a relatively small portion of the budget – around 12 percent, using his numbers, and added that “we have to stop pretending that cutting this kind of spending alone will be enough.”

Well, this is unconstitutional: Senate Democrats want to go after corporations that have left the U.S. over the last 20 years

Article I, Section 9 of the Constitution explicitly prohibits ex post facto laws, those that are passed and signed to outlaw some sort of activity after the fact. But don’t tell that to Sen. Chuck Schumer (D-NY). He may soon introduce legislation that would penalize companies that moved their headquarters overseas because the United States’ unfriendly tax climate, reaching as far back as 1994:

A top Senate Democrat’s proposal to limit future deductions for companies that moved tax addresses out of the U.S. as many as 20 years ago would penalize dozens of so-called inversion deals.

The proposal by Charles Schumer of New York, the No. 3 leader in the Senate’s Democratic majority, would reduce the amount of deductible interest for inverted companies to 25 percent of U.S. taxable income from 50 percent, according to a draft obtained by Bloomberg News.

President Barack Obama has included a similar provision in his annual budgets, and this is the first time the language made it into a legislative proposal, Robert Willens, a New York-based independent consultant on corporate taxes, said by phone yesterday.

“It would have a very profound and immediate effect on these companies and would be very effective at reducing the attractiveness of inversions,” Willens said. “This is certainly a political statement.”

Today in Liberty: Obama’s Treasury secretary wants forced “economic patriotism,” Ted Cruz backs Justin Amash in Michigan primary

“People acting in their own self-interest is the fuel for all the discovery, innovation, and prosperity that powers the world.” — John Stossel

— Treasury secretary wants to force “patriotism”: Treasury Secretary Jack Lew has penned a letter to Senate Finance Committee Chairman Ron Wyden (D-OR) in which he called on Congress to pass legislation that would discourage American-owned businesses from moving their operations overseas to more friendly tax climates. “What we need as a nation is a new sense of economic patriotism, where we all rise or fall together. We know that the American economy grows best when the middle class participates fully and when the economy grows from the middle out,” Lew wrote in the letter to Wyden. “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes. I hope that you will support these legislative initiatives to reverse the trend toward corporate inversions.” The U.S. has the highest marginal effect corporate income tax rate of any of the 33 member countries of the Organization for Economic Cooperation and Development (OECD), according to the Tax Foundation. That’s the reason why businesses are moving overseas. Corporate inversions “hollow out the U.S. corporate income tax base,” Lew says, which is the real reason why the Obama administration is trying to get Congress to act. Businesses act in their own self-interest, and there’s nothing wrong with that. They shouldn’t be compelled to stay in the U.S. by some Orwellian sense of “economic patriotism” when the problem here is a broken tax code that discourages investment.

Today in Liberty: January jobs report disappoints, Biden can’t think of a reason not to run in 2016

“The Constitution was made to guard the people against the dangers of good intentions.” — Daniel Webster

— January jobs report lower than expectations: The Bureau of Labor Statistics report shows that 113,000 jobs were created in January. The unemployment rate fell to 6.6%. Economists predicted a net-gain of 180,000 jobs and the unemployment rate to remain at 6.7%. ADP estimated this week that 175,000 jobs were created last month. The labor participation rate rose slight to 63%, up from 62.8% in January, a 35-year low. The December report was revised upward, though marginally, from 74,000 to 75,000 jobs.

— McConnell trails in Kentucky: Senate Minority Leader Mitch McConnell (R-KY) trails his Democratic challenger, Alison Lundergan Grimes, by 4 points, according to a new Lexington Herald-Leader/WKYT Bluegrass Poll. Just 32% of Kentuckians approve of McConnell’s job performance, while 60% disapprove, which is actually worse than President Obama’s approval rating (34/60) in the state. Grimes also holds a 5-point lead over Matt Bevin, who is challenging McConnell in the GOP primary. The only bright spot for McConnell is that he holds a 26-point lead over Bevin among primary voters.

Economist: Eliminating corporate income tax would help American workers

Staring down what could be a tough year, President Barack Obama and congressional Democrats are focusing their message on the tired theme of “income inequality,” focusing state-based measures to raise the minimum wage and extend jobless benefits to the long-term unemployed.

But the focus on heavy-handed and expensive government programs is misguided. In an op-ed yesterday at The New York Times, Laurence Kotlikoff explained that the best way to help American workers is to eliminate the corporate income tax.

“That might sound like a giveaway to the rich. It’s not,” wrote Kotlikoff, an economic professor at Boston University. “The rich, including Boeing’s stockholders, can take their companies and run — and not just from Washington State to, say, North Carolina.”

“To avoid our federal corporate tax, they can, and often do, move their operations and jobs abroad,” he noted. “Apple’s tax return says it all: The company, according to one calculation, paid only 8.2 percent of its worldwide profits in United States corporate income taxes, thanks to piling up most of its profits and locating far too many of its operations overseas.”

Obama offers another “grand bargain,” seeks more tax revenue

It’s the same old song and dance from the White House. During a speech on Tuesday in Tennessee, President Barack Obama outlined another so-called “grand bargain” scheme to overhaul the corporate tax code and use new revenues to fund another government-financed stimulus plan:

President Barack Obama proposed a “grand bargain for middle-class jobs” on Tuesday that would cut the U.S. corporate tax rate and use billions of dollars in revenues generated by a business tax overhaul to fund projects aimed at creating jobs.
Obama wants to cut the corporate tax rate of 35 percent to 28 percent and give manufacturers a preferred rate of 25 percent. He also wants a minimum tax on foreign earnings as a tool against corporate tax evasion and the use of tax havens.

In exchange for his support for a corporate tax reduction, Obama wants the money generated by a tax overhaul to be used to fund such projects as repairing roads and bridges, improving education at community colleges and promoting manufacturing, senior administration officials said.

The plan was met with resistance from the Times Free Press, a Tennessee-based paper. In an editorial, the paper told President Obama to “[t]ake your jobs plan and shove it,” pointing out that his previous approaches to job creation have done very little to get the economy moving.

Corporate Taxes: Low Rates, High Revenues in Canada

Written by Chris Edwards, Director of Tax Policy Studies at the Cato Institute. Posted with permission from Cato @ Liberty.

Canada’s federal government introduced a budget yesterday that includes new estimates of corporate tax revenues. I’ve discussed how Canada has cut its statutory corporate tax rate to a fraction of the U.S. rate, yet Canada raises more revenue. The new budget shows that the Canadian federal 15 percent tax raised 1.9 percent of GDP in revenue in 2012, while the U.S. federal tax at 35 percent raised just 1.6 percent, per CBO.

U.S. revenues are below normal levels right now, so let’s look further out at the steady-state projections for the two countries. Canada’s budget projection to 2018 shows that corporate tax revenues under the 15 percent rate are expected to stabilize at 1.9 percent of GDP. U.S. projections by the CBO show that corporate tax revenues will rise to 2.6 percent and then fall back to 2.0 percent in the longer-term. So the Canadian corporate tax will raise 95 percent as much as the U.S. tax even though the Canadian rate is just 43 percent of the American rate. The upshot is that worries about proposed U.S. corporate tax cuts reducing revenues are misplaced. If the U.S. federal government chopped its 35 percent rate, the tax base would expand automatically over time and the government would probably lose little if any revenue.

The following charts compare U.S. and Canadian rates and revenues:

Portugal May Become the First of Europe’s Bankrupt Welfare States to Stumble upon a Genuine Recovery Formula

Written by Daniel J. Mitchell, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.

There aren’t many fiscal policy role models in Europe.

Switzerland surely is at the top of the list. The burden of government spending is modest by European standards, in part because of a very good spending cap that prevents politicians from overspending when revenues are buoyant. Tax rates also are reasonable. The central government’s tax system is “progressive,” but the top rate is only 11.5 percent. And tax competition among the cantons ensures that sub-national tax rates don’t get too high. Because of these good policies, Switzerland completely avoided the fiscal crisis plaguing the rest of the continent.

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