Effective Corporate Tax Rates in US

[Famspear]

.......The actual hard truth is we have the tax system we have because we want it to be that way. Nobody wants a tax system that "makes economic sense." They want a tax system they can game and dodge and has personal goodies and loopholes. No evil god came down from outer space and imposed this system on us. We got it because we wanted it. Every time we have done anything whatsoever to make the system simpler or more logical it has lasted very few years before it is worse than ever.....

These observations are right on target, in my view.

Do tax lawyers and CPAs lobby for more complexity, just to keep themselves in business? I don't see very much of that. We don't need to lobby for complexity. Everyone else does that for us. Now, I'll make a confession of sorts: I'm happy about that.

As a practitioner, in a perverse sort of way I guess, I enjoy dealing with the U.S. federal tax system we have (income tax, estate tax, gift tax, etc. -- the whole thing).

While at times I feel exasperated, for the most part I enjoy the tax system -- particularly its complexity. I relish the complexity for at least four reasons.

First, because so much intellectual effort is put into creating and elaborating the "Monster" that is federal tax law -- and particularly I refer the effort by those who draft the provisions of the Internal Revenue Code -- I find the tax law to be beautiful, and I enjoy the process of regarding and appreciating that beauty. (You may consider me perverse, if you like, but be assured that I am not trying to be facetious.)

Second, I enjoy the treasure hunt. I actually enjoy digging into the Internal Revenue Code, the regs, the case law -- everything. The winding, serpentine, Byzantine obscurity of the tax law is one of the very things that attracts me to the study. I enjoy the learning process inherent in the treasure hunt, and I enjoy trying to solve the day-to-day problems that necessitate the careful study of the tax law.

Third, I enjoy the fact that many people -- even other lawyers -- who do not make a regular study of the Monster seem to regard it with fear and awe. The reputation of the formidable complexity of the tax law attracts me to it.

Fourth, I am comforted by the fact that the U.S. federal tax law is so extensive that -- apparently -- I will never become bored with engaging in its study. I will never fully master it. Absent a massive repeal and a replacement with something else -- something far less extensive and less complicated -- I will always have access to raw material that I have not yet fully studied and appreciated.

[JamesVincent]

That's kinda funny Fam. Your four reasons are the exact same four reasons that most people would say it needed to be changed. When you start having laws and regulations that lawyers can't understand then it's usually time to rethink something.

[Pottapaug1938]

What worries me most about the prospect of a major revision of the IRC is that the result will not be based on what is best for the greatest number of people, but on what is advocated by the people who can scream the loudest, pay the best lobbyists the most, publish the most alarmist blogs, and run the scariest "red meat" ads on radio, on TV and on the Internet.

[Famspear]

What worries me most about the prospect of a major revision of the IRC is that the result will not be based on what is best for the greatest number of people, but on what is advocated by the people who can scream the loudest, pay the best lobbyists the most, publish the most alarmist blogs, and run the scariest "red meat" ads on radio, on TV and on the Internet.

In other words, you're worried that the process of making U.S. federal tax law wouldn't change much at all......

[Pottapaug1938]

What worries me most about the prospect of a major revision of the IRC is that the result will not be based on what is best for the greatest number of people, but on what is advocated by the people who can scream the loudest, pay the best lobbyists the most, publish the most alarmist blogs, and run the scariest "red meat" ads on radio, on TV and on the Internet.

In other words, you're worried that the process of making U.S. federal tax law wouldn't change much at all......

Bingo.

At least, now, the scope of the damage tends to be more limited than it might be if the whole IRC were scrapped and replaced.

[JamesVincent]

No corporation anywhere will ever reduce prices or increase salaries because their tax burden has declined. It will just all go to additional profit (especially if that profit isn't taxed).

Duke, you have some valid points but I'm going to take exception to this one with some "reality".

The price of gas recently dropped by a considerable amount over a years time. Private investors and business had increased the supply of oil, therefore lowering the price.

When the price of fuel had gone through the roof before, the price of items shipped by trucking had also gone up. Now that the price has come done, slowly but surely, the cost of items shipped by truck has come down.

Coal in this part of the country was a huge industry. Thanks to severe regulation a lot of coal mines have shut down, tens of thousands out of work, and whole towns have basically disappeared as viable places to live. Not only coal workers but the whole industry surrounding the mines and workers, all the way down to the food stores. This has raised the price of coal to an unaffordable level for many people who depended on it for heat and/ or electricity. As another consequence the price of electricity in this area has spiked as the companies try to convert to something different or just try to wade through this event.

The difference between these is one situation (fuel prices) is a controllable event while the other (coal mining) is not. Cost of fuel increased dramatically when the price of oil increased and decreased dramatically when the cost fell. The price of coal for decades was relatively cheap since it was so plentiful. When the supply shut down the price went up and won't come down. Businesses can and do pass along a lower overhead to customers all the time, while at the same time they have to pass on a higher overhead to customers. This is pretty basic supply side economics, fostered by competition most of the time. If you have a company that can afford a lower price then other companies have to lower their price to be competitive or they will get left behind.

The second part of your statement I would also take exception to. As it stands right now any shown profit will be taxed at least once, possibly more then once. Whether or not you believe it is taxed enough is an entirely different argument. If an employee gets paid, it is taxed. If a company invests in itself it will eventually get taxed, one way or another, such as being taxed for having equipment or an inventory tax. If a CEO pays himself a bonus, it will be taxed as income. If it sits in an account and collects interest then, at a minimum, the interest will be taxed. If it is paid out as dividends then the company may not be taxed on it but the recipient will.

I don't know what "reality" you keep referring to but I've run my own business and had to make decisions like this all the time and had to figure out how to stay competitive while still making a profit. And considering most of my competition were companies that hired illegals for next to nothing it kinda sucked. I paid my guys decent money, nothing great, because that was what I could afford. And a lot of jobs I had to do with less people then the job really needed since I couldn't make enough of a profit to hire anymore, not and still pay a decent wage. Quite a few jobs I lost money on if they ran into overtime because of these. As I have said before I did not go to college, I did not study business management at a preppy school, I jumped into it and learned the hard way what actually works. I could write a thesis on the basis of cost labor and overhead, spent many a night trying to figure out how to do it and still keep going. That is reality, not some fancy dream.

[Duke2Earl]

There is more than one "reality" in business. It is, or can be different in a basically one man operation than in corporate life. You were not living in a world where year end bonuses were decided strictly based on book earnings. You were not living a world were stock prices were based on whether you beat analyst's targets. You were not living in a world where your salary depended on how the stock price changed. You need to sit down with a CEO of a major corporation who tells you to your face that he doesn't give a flying whatever about actual cash flow at all so long as he meets his "metrics." You need to understand that many of the largest corporations in the world have effectively no competition whatsoever or only a very few competitors all of which are far more interested in retaining their marketshare and profits than in actual "competition." Or where the way to increase marketshare is not to reduce prices but rather to buy out the competitors. You were not living in a world where failure usually meant opening your golden parachute.

You make what you believe is an example about the price of fuel. Let me ask a question about that. When the price of jet fuel spiked the airlines increased prices. Now the price of jet fuel has declined. Have airlines reduced fares? Wonder why? Supply side economics is the fancy dream in a large corporate reality.

Yes, life is different at the one man business operation. And yes there are large numbers of these small businesses. But these small businesses do not influence tax policy basically at all. The players in the tax policy business are the Fortune 500. These are the people who will be served in any tax discussion. And these people don't care one tiny little bit about the considerations you describe. And if they can figure out to a way to keep more profit, increase stock prices and in return their own wealth, they will do so...other considerations be damned. And they will be hailed by all the business publications as geniuses at the same time. Warren Buffet has been hailed as the ultimate genius...well, the real key to his success is he has bought and held companies that basically have no effective competition.

I spent near on to 40 years dealing with these folks face to face. They are a different breed. But understand that they are running this railroad we call a country, especially on tax policy. And it doesn't matter which party is in power or what reality is at street level. And that is the reality on tax policy. No fancy dreams involved. And if you would like a further explanation about why these folks really don't care all that much about double taxation and why all they would do if the tax burden was reduced is that they would just stuff it in their pockets, I might oblige later.

[Duke2Earl]

Let me be very clear about one more thing. I am not at all disputing the realities faced by a small businessman in running a small business. What I was and have been talking about all along here is the actual political realities involved in tax policy...how and why tax law is made, who it serves and the realities involved. I am telling you this from the perspective of someone who worked in those exact trenches in DC for a long, long time. I lived in Gucci Gulch. I met with the Joint Committee. I lobbied Senators and Congressmen. I was a consultant for Fortune 500 companies and their leaders for the majority of my career. I have been there. Personally, I tried to push a few small issues toward to common good and succeeded a bit and lost more often than I won. I understand that it is a very artificial world but it is the actual way we make tax policy. I can understand completely why you wouldn't like that or the fact that tax policy has little if anything to do with the real economics or average individuals or small businesses. What it does have to do with is not upsetting the apple cart and serving the real powers (both individual and corporate) that control our economy. And it does not matter one tiny little bit which party is in power. Money is still money and money will be served. The only way to change that is to take all money out of politics ...and that will happen when pigs fly.

Again, I insist we have exactly the tax Code that the people responsible want. It was not imposed by alien monsters. It is what our elected representatives of both parties want. We have exactly the tax law enforcement that we want. If Congress wanted more enforcement they could have it easily. Right now they want less enforcement and they are getting exactly what they want. Later perhaps they will want more enforcement... who knows? There won't be major systemic changes to the tax system because the people who actually count don't want to do that unless it was both to their benefit and play to the public relations narrative they want to sell. So they will continue to play small ball with marginal stuff and hope to impress people with their rectitude. Sorry if the actual truth disappoints.

[Pottapaug1938]

Without getting too deeply into politics or repeating what others have said, I agree that we have the tax system that we want. Even those who advocate for a much simpler tax system know that most people don't WANT a simpler system -- they want one which they can game as much as they can for their own benefit, or want to use as a political weapon to not pay for things they don't like or approve of.

[JamesVincent]

Duke, again you make some good points, and I'll get into them in a second but I can think of a few points you missed.

1. Don't assume. My business was a small one, very true. Sometimes I was happy just being able to pay the bills. However; one of the reasons I was able to pay the bills was because I worked with, and did work for, people who's net worth is more then a lot of countries out there. And they did business with the exact same ethics I did, which is why they got where they are. I have an uncle who was thrown out of school in the 7th grade because he was Dyslectic. He's now a multi-millionaire and retired, and taught me quite a bit about business along the way. Something I've noticed over the years, not just in business but in life in general, the ones that are truly wealthy are the ones that operate with ethics. The ones that want to be "wealthy" or seen as wealthy are the ones like what you describe. One of my friends donated $500k to a charity and then flew to Belize to help build the school he just paid for. There are many, many more examples in well known CEOs that show the same traits.

2. Your argument was moot when you started it. I made the example of fuel when you said that no business would pass on any savings to customers if it dropped their bottom line. I said they would since it is a market driven economy and competition would force them to. You apparently agreed but then brought up airlines. Just because one segment of one industry does not, does not mean all of them don't. There are assholes in every group. There are multiple historic examples to be found, not just in modern times. Supply, demand and competition will always affect pricing and profits.

3. The basics of business are the basics of business. If you truly understand them they can apply to a lemonade stand as well as an international conglomerate. They don't change, only their scope changes. So, yes, I can understand the business process, no matter the process or scope involved, just might take me longer to wade through it.

4. There are quite a few companies that lose money on their most popular products just to get people in the store, due to competition. So, yes, sometimes the whole competition thing will cause a company to go into the red just to get foot traffic. Happens on a daily basis.

5. There is no such thing as a company without competition. There is nothing in this world that only one company can make, or make the only version or equivalent to. Even if you get into super niche items, like weapons for the military, there are multiple companies vying with bids and contracts to make them.


I am not disagreeing with you at all when it comes to saying that the laws in place are the ones that were passed, with help from outside sources. I am not disagreeing with you at all when you say that some CEOs care more about the bottom line then any ability to change for the good of the customer. I am disagreeing with your blanket statements that all companies do it this way or all companies react this way. They don't. Before I went out on my own I managed a furniture store that, back in the late 90s, did about $2 mill a year in sales. Probably one of the best teachers I had had on business was the owner at that point. And he made his decisions the exact same way I make mine.

[Duke2Earl]

While I do agree that nothing is 100% and there are many people with ethics out there, if the majority of people felt and operated the way you say, the tax law, tax policy, and indeed the entire society would be much different than it actually is. In truth, I also believe in ethics and doing the right thing. And it has cost me dearly. It cost me clients. It has cost me "friends." It cost me promotions. I was not approving of the way I described things operating in the world... simply as I saw it actually happen. I am glad your experience was different.

[JamesVincent]

I'll be the first to admit that I lucked out, having the people in my life that ultimately influenced my decisions and the way I made them. But, even then, they were not out of line with my own personality so it was easier to take in. Being the boss sometimes sucks. Some decisions, no matter what you do, are going to hurt people but are needed if the company is going to survive. The good of the company has to come first but without customers you won't have a company anyway. During the height of the recession my uncle had to lay off his whole crew because he no longer had the business to keep the sawmill running. So he laid them off so they all could collect unemployment. He built up some long terms orders and brought them back six months later. He could have just as easily fired them and closed the mill indefinitely, he didn't have to do what he did but he did. I've seen other people make the same sort of decisions. One of the guys with whom I worked a lot has a chain of motorcycle shops. During the same time period he had to close two of his shops due to low sales. He put all of his employees in the other stores, even though that brought those store's numbers down, so none of his employees went jobless during the recession.

That's the kinda people I dealt with and tried to emulate. They built strong businesses and did it with compassion and ethics and that's how they got where they are. They still had to make tough decisions for the company's good but they did what they could to minimize how it hurts the employees or the customers.

[Pottapaug1938]

. One of the guys with whom I worked a lot has a chain of motorcycle shops. During the same time period he had to close two of his shops due to low sales. He put all of his employees in the other stores, even though that brought those store's numbers down, so none of his employees went jobless during the recession.

That's the kinda people I dealt with and tried to emulate. They built strong businesses and did it with compassion and ethics and that's how they got where they are. They still had to make tough decisions for the company's good but they did what they could to minimize how it hurts the employees or the customers.

In the 1930s, my grandfather was Vice President of a machine tool company in Worcester, Mass. The owner bent over backwards to avoid letting anyone go, including Grampa; so instead he cut wages and promised to make things up to those who stuck with him. When World War II approached and orders started flooding in, the owner kept his word; and Grampa and his family never lacked for anything again, and could make things possible for their three grandchildren.

[Duke2Earl]

Yes, there are nice stories out there. I know of some myself. But there are also lots and lots of not so nice stories on a massive scale. It might be deemed too political to relate some of them so I will just say that they are out there and quite recent.

[Judge Roy Bean]

... And yes there are large numbers of these small businesses. But these small businesses do not influence tax policy basically at all. The players in the tax policy business are the Fortune 500. These are the people who will be served in any tax discussion. ...

Tax-issue lobbying expenditures: https://www.opensecrets.org/lobby/issue ... &year=2014