FacebookTwitterGoogle+RedditEmail

Instead of Taxes, Make Corporations Pay Government With Stock

President Trump and Congress will soon take up the job of reforming the tax code, with particular attention to corporate taxes. Since a substantial portion of the corporate income tax is paid by wealthy shareholders, many of us are concerned that “reform” actually means reducing the tax burden for the 1% — and leaving a larger burden for the rest of us.

But the need for true reform is real. Although the corporate tax rate is 35%, companies generally pay around 23%. Giant loopholes save companies money, deprive the government of money, and create money for people in the tax avoidance industry.

Exotic schemes to game the system are constantly in the news.

Take, for example, the corporate inversion strategy, in which a U.S. company arranges to be taken over by a foreign company in order to eliminate its liability on overseas profits. These takeovers generate large fees for the accountants and lawyers who engineer the process without improving the broader economy.

“Dead peasant” insurance policies, made famous by the documentarian Michael Moore, are another example. In that scheme, huge companies like Wal-Mart take out insurance policies on the lives of front line workers, such as checkout clerks, to smooth out their profit flows and reduce their tax liability. If a worker dies, the company gets the payout, not the individual or his family. Someone undoubtedly got very rich dreaming up dead peasant policies but, again, this financial innovation does not contribute to economic growth.

Perhaps the greatest scheme of all is the private equity industry, which loads firms with debt. Because the interest on that debt is tax deductible, private equity firms can make large profits even if they’ve done nothing to improve a company’s performance. Incidentally, many of the richest people in the country made their fortune in private equity, including folks like Mitt Romney, Pete Peterson, and many other prominent billionaires or near-billionaires.

If the tax reformers are serious, and I hope they are, here’s one simple way to largely eliminate the gaming opportunities that have made these people rich.

Instead of traditional taxes, the government could require corporations to turn over a portion of their stock, say 25%, in the form of non-voting shares. The government would benefit from any dividends or share buybacks but would have no voice in running the company.

This system would eliminate almost all opportunities for gaming since a company would not be able to deny the government its share of profits unless it also withheld profits from its other shareholders. And we would not call that “tax avoidance” but outright theft – the sort of thing that gets people sent to jail.

Many companies might actually embrace this system. They would save a huge amount of money on accounting and bookkeeping, and they wouldn’t have to take the tax code into consideration when they decided their accounting procedures for long-term investments. They could simply do what makes the most sense for them.

(Publicly traded companies could be required to give the government non-voting shares, with private companies allowed to choose between this system or a higher tax rate.)

Don’t bet on the Republicans looking in this direction — the potential losers from these reforms, after all, are probably rich people who vote Republican. It is likely that they have more interest in reducing the taxes corporations owe than in reducing waste and increasing economic growth. But the rest of us should have a clear idea of what is at stake. The corporate tax code is badly in need of reform and there are ways to make it better.

This column originally appeared in the Los Angeles Times.

More articles by:

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

April 19, 2018
Ramzy Baroud
Media Cover-up: Shielding Israel is a Matter of Policy
Vijay Prashad
Undermining Brazilian Democracy: the Curious Saga of Lula
Steve Fraser
Class Dismissed: Class Conflict in Red State America
John W. Whitehead
Crimes of a Monster: Your Tax Dollars at Work
Kenn Orphan
Whistling Past the Graveyard
Karl Grossman - TJ Coles
Opening Pandora’s Box: Karl Grossman on Trump and the Weaponization of Space
Colin Todhunter
Behind Theresa May’s ‘Humanitarian Hysterics’: The Ideology of Empire and Conquest
Jesse Jackson
Syrian Strikes is One More step Toward a Lawless Presidency
Michael Welton
Confronting Militarism is Early Twentieth Century Canada: the Woman’s International League for Peace and Freedom
Alycee Lane
On David S. Buckel and Setting Ourselves on Fire
Jennifer Matsui
Our Overlords Reveal Their Top ‘To Do’s: Are YOU Next On Their Kill List?
George Ochenski
Jive Talkin’: On the Campaign Trail With Montana Republicans
Kary Love
Is It Time for A Nice, “Little” Nuclear War?
April 18, 2018
Alan Nasser
Could Student Loans Lead to Debt Prison? The Handwriting on the Wall
Susan Roberts
Uses for the Poor
Alvaro Huerta
I Am Not Your “Wetback”
Jonah Raskin
Napa County, California: the Clash of Oligarchy & Democracy
Robert Hunziker
America’s Dystopian Future
Geoffrey McDonald
“America First!” as Economic War
Jonathan Cook
Robert Fisk’s Douma Report Rips Away Excuses for Air Strike on Syria
Jeff Berg
WW III This Ain’t
Binoy Kampmark
Macron’s Syria Game
Linn Washington Jr.
Philadelphia’s Top Cop Defends Indefensible Prejudice in Starbucks Arrest Incident
Katie Fite
Chaos in Urban Canyons – Air Force Efforts to Carve a Civilian Population War Game Range across Southern Idaho
Robby Sherwin
Facebook: This Is Where I Leave You
April 17, 2018
Paul Street
Eight Takeaways on Boss Tweet’s Latest Syrian Missile Spasm
Robert Fisk
The Search for the Truth in Douma
Eric Mann
The Historic 1968 Struggle Against Columbia University
Roy Eidelson
The 1%’s Mind Games: Psychology Gone Bad
John Steppling
The Sleep of Civilization
Patrick Cockburn
Syria Bombing Reveals Weakness of Theresa May
Dave Lindorff
No Indication in the US That the Country is at War Again
W. T. Whitney
Colombia and Cuba:  a Tale of Two Countries
Dean Baker
Why Isn’t the Median Wage for Black Workers Rising?
Linn Washington Jr.
Philadelphia’s Top Cop Defends Indefensible Prejudice in Starbucks Arrest Incident
C. L. Cook
Man in the Glass
Kary Love
“The Mob Boss Orders a Hit and a Pardon”
Lawrence Wittner
Which Nations Are the Happiest―and Why
Dr. Hakim
Where on Earth is the Just Economy that Works for All, Including Afghan Children?
April 16, 2018
Dave Lindorff
President Trump’s War Crime is Worse than the One He Accuses Assad of
Ron Jacobs
War is Just F**kin’ Wrong
John Laforge
Nuclear Keeps on Polluting, Long After Shutdown
Norman Solomon
Missile Attack on Syria Is a Salute to “Russiagate” Enthusiasts, Whether They Like It or Not
Uri Avnery
Eyeless in Gaza   
Barbara Nimri Aziz
Iraq Then, Syria Now
FacebookTwitterGoogle+RedditEmail