Taxes - Who Needs Them?

Lobbyists?

Well, apparently corporations don’t.  There are two major forms of taxation that are issued by the government: personal income tax and corporate tax.  Corporations face double taxation, once when they pay corporate tax on generated profits, and secondly when its employees face personal income tax afterward.  As a result, most corporations look to find any means of limiting the amount of money they pay to Uncle Sam in order that said money makes it into their own pockets.  President Obama addressed these issues in early January, stating that the White House was looking to reduce the standard corporate tax rate of 35 percent while reducing the number of viable tax breaks which are commonly abused.  The consequences of these policy changes would likely increase federal tax revenue as well as stimulate investment, all of which would improve the economic status.

The New York Times recently reported the tax findings of Carnival Corporation, the world’s largest cruise ship operator that offers trips all across the globe.  According to reports, Carnival Corporation pays 1.1 percent in corporate taxes.  Their cumulative profits, on the other hand, are 11.3 billion dollars, allowing for Carnival to skip out on nearly 3.8 billion dollars in taxation to the government.  All of this is possible due to an obscure loophole “provision that lets some shipping companies legally incorporated overseas (Panama, in Carnival’s case) avoid taxes.”

Capital IQ, a research firm that analyzes company reports,  examined 500 of the largest companies of which are found in the S&P 500 stock index.  Their results indicated that out of the entire pool, only “115 paid a total corporate tax rate — both federal and otherwise — of less than 20 percent over the last five years […] [of which] thirty-nine of those companies paid a rate less than 10 percent.”  These firms are able to avoid the high corporate tax rate through a plethora of methods such as spending exuberant amounts of cash to obtain new capital, one of the many ways that airliners receive tax breaks.  Because there are multitudes of corporations that avoid the imposed tax rate, the government takes significant reductions in tax revenue, money that could aid in reducing federal debt and be further allocated to other government programs.

The abuse of the corporate tax loopholes allow for companies to become inefficient with the uses of their money, resultantly causing issues such as purchases of unnecessary capital and relatively poor investments.  Politicians claim “Inefficiencies like these slow economic growth, and they are the reason that both conservatives and liberals criticize the corporate tax code so harshly,” yet the actual ability to reform these tax codes is massively undercut by lobbyists for corporations that greatly benefit from limited taxation.  Hopefully Obama and Congress can act quickly to reduce these taxation abuses through eliminating such loopholes that Carnival Corporation and others have found.

While this is a necessity for better business practices and possible greater economic performance, I'm not going to hold my breath.