TUSZYNSKI: Reform our corporate tax code

OPINION:

With 2012 right around the corner, it is time to think of a New Year’s resolution, and this goes for Congress as well. Instead of “kicking the can” down the road with failed attempts like 2011’s supercommittee, Congress should make a real effort to start fixing the U.S. debt problem and take significant steps toward promoting economic growth in January.

If we learned anything in 2011, it doesn’t matter if you are in the 1 percent or 99 percent; many Americans are disappointed by the weak economic recovery and would like to see a boost in economic and job growth. Presidential hopefuls surely will focus on these issues, but we don’t have to wait for the next administration to start taking steps in the right direction.

Entitlement spending and income-tax rates might be polarizing issues, but there is something that already has bipartisan support: reducing and restructuring the corporate tax code.

The Occupy movement claims it wants corporate America to pay its fair share in taxes, but the U.S. already has the highest statutory corporate tax rate in the industrialized world at 35 percent. Not only do U.S. businesses pay the most, but corporations are not the same as individuals. Corporations are made up of employees, and they are not millionaires. So who bears the weight of a high corporate tax rate? It’s not just corporations; it is the “99 percent” as well.

When most people think of corporate taxes, they do not consider the negative effects such taxes have on the middle class in terms of wages, prices and employment. In 2011, the surge of class warfare suggested that one side must lose in order for the other to win. For the middle class to win, the upper class must lose. But a new year and new policies can prove this idea comes from flawed logic. There are policies, such as reducing and restructuring the corporate tax rate, that enable all parties to benefit.

What Democrats and Republicans need to realize is that the U.S. corporate tax does not discriminate between rich and poor but robs everyone of potential wealth. Higher corporate tax rates cause higher prices for consumers and lower profit margins for firms. This limits the firms’ ability to hire more people, stunts wages and gives smaller rates of return to investors. Whereas Congress focuses on distribution of the economic pie, corporations expand the pie.

The “99 percent” argue that some corporations lobby for certain privileges and take advantage of tax loopholes. They are correct. However, the real cause of this problem is the institutions and incentives that allow firms to exploit the system. For example, the complexity of the tax code encourages firms to focus more on how to manipulate the tax code than on how to enhance their core business strategies. If we want to change the actions of the corporations, the rules of the game must change as well.

If the United States does not address this issue, firms will continue to outsource economic activity, causing the loss of American jobs. Over the past 30 years, globalization has caused more countries to compete against the United States to attract and retain corporations. Canada and the United Kingdom already have enacted plans to reduce their corporate tax rates, making them more competitive and more attractive to business. If you do not believe global competitiveness affects the U.S., consider this: In 1960, the U.S. had 17 of the 20 largest firms in the global economy. Today, we have just six.

One of the strongest arguments against corporate tax reform is that the U.S. cannot afford to lose revenue from lower rates. However, corporate tax reform can be done in a way that revenue is not lost - by lowering the rates and broadening the base. Congress calls this option “revenue neutral.” It also can result in increased revenues through increased economic growth.

While an estimated 13.3 million unemployed people are waiting to work, the Occupy Wall Street movement and politicians should be cheering for corporate tax reform, not protesting it. No matter which side you are on, the reality is that instead of helping the economy, the federal government is taking a large slice of the economic pie through its high corporate tax rate. While 2012 will bring multiple policy debates, lowering the corporate tax rate is a good first step in the right direction to create economic growth.

Nick Tuszynski is a fellow at George Mason University’s Mercatus Center. He’s a co-author of the Mercatus research paper “Why the United States Needs to Restructure the Corporate Income Tax.”