By Joel D. Joseph, Chairman, Made in the USA Foundation
Over the past thirty years, corporations have convinced governments around the world to lower their taxes, leaving individual taxpayers with the bill. Of the developed countries, Ireland has the lowest tax rate for corporations at 12.5 percent, while individuals on the Irish Isle pay nearly four times as much, or 48 percent. Because of this exceptionally low corporate tax rate, Ireland has stolen nearly all of the U.S. pharmaceutical industry--Pfizer, Merck, Abbott, Allergan, Glaxo Smith Kline, Lilly. Ireland's low tax rate has enticed drugmakers and other companies from Switzerland and other countries.
Workers around the World Are Living Paycheck to Paycheck
Seventy-eight percent of full-time workers in the U.S. live paycheck to paycheck, up from 75 percent last year according to a recent report from CareerBuilder. U.S. workers are not the only workers in the world to live hand-to-mouth. An annual study by the Molinari Institute concluded that French workers are the most taxed in Europe above even the Belgians who held have previously held the unfortunate title. This explains why the French are protesting in the streets, setting fire to barricades, destroying property and otherwise acting out their frustrations.
Corporations Used to Pay More
It used to be that corporations paid taxes equal to or above the rate paid by individuals. Increasingly, corporations worldwide are not paying their fair share of taxes.
In 1952, the corporate income tax accounted for 33 percent of all federal tax revenue. Today, despite record-breaking profits, corporate taxes bring in less than nine percent of federal revenues.
Europe has the lowest regional average rate, at 18.35 percent (25.58 percent when weighted by GDP). The worldwide average corporate tax rate has consistently decreased since 1980, with the largest decline occurring in the early 2000s.
Since January 1, 2018, the federal corporate tax rate in the United States was reduced to a flat 21% due to the passage of the Tax Cuts and Jobs Act of 2017. Individuals in the United States now pay up to 37% tax, 76% higher rate than corporations.
The Bahamas, Bermuda and some other tax havens charge corporations no tax at all. In France, the corporate tax rate is 33 percent, while individuals pay 45 percent. In Germany the gap is even larger, where corporations pay 29.95 percent while real people pay 47.5 percent. Similarly, in Japan, corporations pay 29.94 percent while individuals pay a whopping 56%. In China corporations pay only 25% while people pay 45 percent. While China is nominally a "communist" nation, Karl Marx would not have approved of this large disparity.
Contrary to the reasons stated for getting low rates, corporations have not been using their ill-gotten gains to create new jobs. They have, in the main, used windfall profits to buy-back their own stock. All this accomplishes is raising stock prices without making the companies more productive. Stock buybacks hit a record $1.1 trillion in 2018. Stock buybacks do not create jobs or make products more efficiently; they only boost stock prices.
We need a worldwide treaty that sets a uniform international corporate tax rate that is equal to or higher than individual tax rates around the world. Corporations can move around the world much easier than individuals can. They open "offices," often mailboxes, in Bermuda or the Bahamas to escape paying taxes altogether.
The United States can lead the way by proposing a Uniform Corporate Tax Treaty. The European Union should be our first partner as it suffers severely from the tax-dodging corporations doing business there. For example, in August, 2016, the European Commission found that Apple benefited from illegal tax benefits in Ireland from 2003 to 2014 for more than $15 billion.
At the same time, the United States can set its corporate rate at the maximum rate charged individuals, or about 37%. Since the U.S. Supreme Court ruled that corporations have constitutional rights like citizens, why should they pay a lower tax rate? After the Trump administration lowered corporate taxes to 21%, the budget deficit soared by more than $1 trillion. The U.S. can also prohibit by statute, or declare invalid, U.S. corporations who move their headquarters offshore to Ireland, Bermuda or the Bahamas, and impose taxes on these companies based on U.S. tax rates. These so-called "inversions" are blatant tax dodging and must be stopped.