Taxes and Used Car Dealers

To support their argument against President Obama’s calls additional revenue to solve the budget deficit, Republicans have argued that the U.S. has one of the highest corporate tax rates in the world. Democrats, on the other hand, have pointed out that companies and wealthy Americans are paying historically low levels of taxes. Paradoxically, both parties are right. To understand why, you need to think of the U.S. tax code like code like a user car dealership. Sticker prices are usually high at used car dealerships, but hardly anyone ever pays sticker price. The same is true with federal tax rates, especially with corporate taxes. Although the corporate federal tax rate in America is high (too high in my view), most companies take advantage of a plethora of loopholes and deductions that result in a much lower actual corporate tax. The Government Accountability Office released a study in 2008 that revealed 55% of U.S. companies paid no federal income taxes during at least one year in the seven-year period covered by the study. This makes our tax code look like a proverbial block of Swiss cheese, as the wealthiest companies and individuals are able to become savvy at tax avoidance by hiring the best accountants and tax attorneys who can find loopholes. The U.S. corporate tax rate needs to be competitive with the rest of the world. However, most countries do not have the kind of loophole-ridden tax system we have. Simply stated, we can help solve the massive budget deficit by raising revenue while actually lowering the corporate tax rate. This means we need to close the loopholes, end the subsidies (corporate welfare) and make the tax code fairer and the tax environment more predictable for businesses. The current Administration has supported this, but to date, the Tea Party element of the House Republican caucus has opposed anything that would increase the amount of revenue coming into the Treasury. Hopefully saner heads will prevail.

About the author

I have been an active Latter-Day Saint all of my life and have also been an enthusiastic Democrat and progressive since my days as an economics undergraduate student at Brigham Young University. The hostile climate towards progressives at BYU inspired me to get involved with the BYU College Democrats, where I served as president during my senior year. I have since obtained a master’s degree in international relations from the University of Oklahoma. I served a full-time mission to the Philippines. I’m active in my local ward, happily married and have two rambunctious little boys and an infant daughter.