Tax Policy

FAIRNESS HAS BEEN FORGOTTEN

When Mitt Romney ran for president in 2012, he famously stated “corporations are people too.” If that were the case, then they would be paying their fair share of taxes to the federal government. In 1950, corporate tax revenue accounted for 26% of federal tax receipts and individuals for 45%. By 2013, corporate contributions had dropped to 10% while individual contributions had risen to 63%.

A brief look at the U.S. historical tax rate reveals the top tax rate in the U.S. occurred in 1945 at a rate of 94% on earnings above $200,000. The rate fell in 1947 to 86.5% on earnings above $200,000. In 1971, the top rate was reduced to 70% on earnings above $215,000. During the Reagan years, the rate was reduced on top earners to 69% in 1981, then 50% in 1982. In 2004, the rate fell again to 35%, but then rose to 39.6% on earnings over $450,000 in 2013.

To hear the howling from corporate America, you would think the federal government was taking their last dime. Trump, with Walden’s full support, wants to reduce the corporate tax rate from its current 35% to 15%. Why should corporations contribute fairly to the federal coffers? Corporations would have a difficult time existing and generating a profit if not for the public infrastructure, which today is largely funded by individual taxpayers. Individual tax payers pay for the roads, sewers, water, electrical grids, airports, police, fire, defense, security, public schools, and universities. Why should corporations not pay for the privilege of using tax payer funded infrastructure?

Another issue, why are corporations playing the poverty card? U.S. Corporations in 2016 were sitting on $2.5 TRILLION in overseas cash accounts. These funds are subject to the Corporate Tax of 35% if they are returned to the U.S. So they continue to accumulate overseas. Some familiar names include Microsoft, General Electric, and Apple, all with $100+ billion abroad. Tim Cook, CEO of Apple explains this is not tax avoidance but, rather “good old fashioned ingenuity”. Obama proposed a one-time amnesty for repatriation of funds at 14%. Corporations balked, hoping for a future Republican president more in line with their thinking, which is zero. The political rhetoric, of course, is about the JOBS these funds will create if the funds are brought back into the country at a minimum or zero tax rate. What is the truth? The truth is Corporate America is awash in cash domestically. According to Federal Reserve data, U.S. Corporations are sitting on $1.9 TRILLION cash here at home. Bringing back their $2.5 TRILLION overseas cash would simply add to the pile. The story gets even more convoluted. Zero-yielding money markets in the U.S. are holding another $2.7 TRILLION in investor cash. And, banks are storing another $2.2 TRILLION in excess cash reserves at the Federal Reserve. In total, available cash on hand amounts to $9.3 TRILLION and it is currently doing NOTHING. Certainly not being reinvested in product, production, or people.

Well, almost nothing. In the 12 month period ending March 2016, the S&P 500 companies spent a record $590 BILLION on stock share buy-backs according to S&P Dow Jones Indices. When a company buys back its own stock, it reduces the number of shares outstanding, increases earnings per share, and generally causes the stock price to rise. This action benefits the remaining shareowners, and more importantly for the Corporate Officers, the value of their stock options. Total shareholder return for the period ending March 2016 was a record $975 BILLION. In other words, their strategy to increase their personal wealth worked very well.

To convince “public corporations” to serve the public as they are intended to do so in return for the legal doctrine that they have the same rights as a person, I would propose as an incentive to invest their funds rather than sit on them, a 1% excise tax on cash balances in excess of a to-be-determined percentage of net corporate assets. And what about the average American? Wages continue to stagnate and layoffs continue to occur. In other words, as Elizabeth Warren writes, the middle class continues to get screwed while the rich get richer. I want to add many of these same people continue to vote for the Republicans who are complicit in all of this. If you believe, as Trump has tweeted, that a reduction in corporate tax rate will result in $4000 to $9000 in wage increases, I have some Arizona beach front property I would like to sell you.

Let’s be real, nobody likes to pay taxes. But there is a cost to be paid for living in an advanced society with many benefits. When you drive down the interstate to a pristinely maintained coastal beach park, does it not occur to you that it was your shared investment in your government that made it all possible? Without our shared government we are nothing more than disconnected tribes foraging for survival. I propose that “ALL INCOME IS CREATED EQUAL”. That means whether it is W2 earnings, capital gains, dividends, or interest, it is ALL taxed at the same rate. As Warren Buffet states, my secretary should not pay a higher percentage than a multi-billionaire. All incomes of $50,000 or less would be taxed at a federal income tax rate of ZERO. Individual deductions would be allowed only for state and local taxes, and government certified 501C3 charity groups. Furthermore, ALL 501C3 certified organizations would be explicitly and immediately denied tax exempt status for engaging in political speech. If you want your right to free speech then you get to exercise your right to pay taxes.