Taxation without Representation

April 16, 2012

How ironic that yesterday was the tax filing deadline for most of American and Patriots Day in Massachusetts and Maine.

The patriots fought for “no taxation without representation,” but 238 years after the battles of Concord and Lexington, that’s what we have.

While the Brits lost The Revolutionary War, we’ve followed their miserable example of excessive taxation, but have made it far more complex.  In the hands of Congress and the President, the Federal Tax Code has become a more predatory beast than our forefathers could have ever imagined.

The Federal Tax Code is now more than 75,000 pages long – and growing by the day.

There is no greater drag on the economy.  Yet, five years after the beginning of The Great Recession and with the economy still growing at a rate of less than 2% a year, Congress has done nothing to reform this monster.

World’s Highest Corporate Taxes

How badly is reform needed?

The U.S. has the highest corporate tax rate in the world at 39.2%.  It’s no coincidence that many of the countries with the highest corporate tax rates – Japan, France and Italy, for example – are in a recession and performing poorly.

Yet, in spite of that exorbitant rate, many of America’s largest companies pay little or no corporate taxes.  Consider General Electric, which paid no taxes on $14.2 billion in profits in 2010, and even received a $3.2 billion tax benefit.

Could political connections have anything to do with it?  GE CEO Jeffrey Immelt, who was criticized for GE’s business transactions with Iran and was listed by Forbes as the fourth worst CEO of a large publicly traded American company, was named by President Obama to head his Economic Recovery Advisory Board.

Clearly, free enterprise isn’t free – unless you’re politically connected.

When corporations like GE pay no taxes, other businesses, both large and small, are forced to pay more than their share.

Small businesses, not Fortune 500 companies, account for most job creation in the U.S., yet they’re forced to subsidize companies like GE.

Tax Breaks

Tax breaks allegedly exist to accomplish government policy objectives, such as producing alternative energy.  In reality, they punish some businesses and reward others.

The amount of corporate tax revenue collected is about equal to the value of corporate tax breaks, according to the Associated Press, which bases its statistics on information provided by the Internal Revenue Service, the Pew Research Center and other sources.

So if all tax breaks were removed, the corporate tax rate could be half of what it currently is and still produce the same amount of revenue.

Imagine the boon to the economy that would create.  But it will never happen.  The AP reported that 2,221 organizations have retained 6,503 lobbyists just to lobby Congress on tax issues.

That’s 65 lobbyists for each U.S. Senator and 15 for each U.S. Congressman.

President Obama has said he wants a fairer corporate tax rate.  Don’t bet on it.

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