Corporate Tax Speech

Corporate Tax Speech

The corporate tax is the most poorly understood of all the major methods by which the government collects money. Economists concluded long ago that it is the least efficient and least defensible of taxes. High corporate tax can cause significant distortions in economic behavior.  Along with high corporate taxes come the multiple loopholes associated with it, including companies writing off most of their income to avoid tax rates of up to forty-percent. Tax reform has long been an issue in the U.S. Compared to the European Union; the U.S. has steadily held a rate over ten percent higher than that of our European counterpart, putting the U.S. at a competitive disadvantage (KPMG 2013).

John F. Kennedy once said, “The tax system siphons out of the private economy too large a share of personal and business purchasing power and reduces the incentive for risk, investment and effort--thereby aborting our recoveries and stifling our national growth rate.” (Tax Foundation). This can be applied to not only the American tax system; but corporate tax internationally. With a lower corporate tax, countries will become more competitive with one another in every international industry, which will lead to lower prices for all consumers. Competition will only enhance working wages, which will lead to an increase in the standard of living. These increases will lead to entrepreneurship, investment, and overall high productivity for all nations.        

An important study done after the crash of the stock market in 2008, conducted by the Organization for Economic Cooperation and Development, revealed that the corporate tax is the most harmful tax in correlation to long-term economic growth. The report found that corporate income taxes appear to have a particularly negative impact on GDP per capita. Lowering the corporate tax rates they determined, could lead to productivity gains in firms that are dynamic and profitable.

 In countries throughout Europe high corporate tax rates also hinder the growth of businesses. For example, look at the economies of Italy, France, and Germany. These are three of the largest economies that make up Europe. They are also part of the reason for Europe’s recent economic stumble. These countries all have one thing in common; corporate tax rates over the thirty-percentile rate, notably higher than the European average of 25%. Germany’s corporate tax has been on a steady decline since 2006, when it peaked at forty-percent (Capitalism.com). This helped the country see a stimulation in its economy from then forward, but now Germany’s GDP is again slipping. The small decrease in corporate tax rates in 2006 could be duplicated now. This would make Germany’s rates more competitive with the rest of Europe.        

 The economy of France has stalled since the start of this decade. Contrary to Germany, France corporate tax rate has been just as stagnant as its economy, holding steady at thirty-three percent over the last decade. France currently has the fifth largest economy in the world (TradingEconomics.com). With leading nations setting the bar for corporate tax ceiling and seeing a stagnation in their economies, it is time for these countries to lower their rates and become more competitive. This will give their economy a chance to thrive again.

Cutting the corporate tax rate will lead to higher wages and higher standards of living. Economists have established that the burden of corporate tax most heavily falls on the laborers (Britannica.com). In a study conducted by the Oxford University Centre for Business Taxation a sample of over 55,000 companies in nine European countries was taken. According to their model a one percent increase in average corporate tax rate decreases annual gross wages by 0.9 percent. This means the government collects more from the company at the expense of the company’s workers, something that most workers are completely unaware of when voting on the issue of corporate tax. The same ratio can be used for decreasing rates. For every one percent decrease in corporate tax leads to a 0.9% increase in wages (TaxFoundation.org). In theory this would mean that if the U.S. were to lower their corporate tax rate by ten percent, the general labor force could see a wage increase of eight to nine percent meaning the average American would make close to four thousand dollars a year more than they do now. This truly shows the power of corporate tax over laborers. In order for these corporations to cover these high taxes imposed upon them, they must cut back in all areas including labor.