Republicans Support An Unfair Tax Code

The two charts above (from the New York Times Business section) shows what the Republicans have been able to accomplish for their corporate buddies. Deutsche Bank says "profits have grown for six consecutive quarters at an annualized rate of 38 percent, which is the fastest six quarter change in corporate profits in history." The chief U.S. economist at the bank, Joseph LaVorgna, says, "Not only are we seeing a tremendous V-shaped recovery in corporate profits, but we are in fact seeing the biggest corporate profit recovery ever. . .That also means that companies have more money than they know what to do with."

A reasonable person might think that these record corporate profits would translate into record tax revenues paid on those profits. But that is not happening. As the second chart shows, tax revenues on corporate profits have been falling since 2005 and have reached a record low (and this doesn't even take into account the most recent tax cut for corporations at both the federal level and in many states).

In fact, while making huge profits many corporations (like Exxon and Bank of America) are paying no income taxes at all. The corporations want their rights as a person (given to them by the Supreme Court) to fund political campaigns, but don't want their responsibilities as a person to pay their fair share in taxes. In plain English, they want to have their cake and eat it too.

And this seems to be just fine with the Republican Party. In fact many Republicans (like Tim Pawlenty, Louie Gohmert and Newt Gingrich) are fine with corporations paying no tax at all, while they have no objection to workers paying taxes. After all, someone has to pay for congressional salaries and giveaways to the rich and corporate entities.

How can they get away with advocating such an unfair tax system? They do it by telling the same big lies they have been selling to a gullible public since the Reagan administration. The first big lie is that corporate tax cuts creates jobs. While this may sound reasonable on the surface, it has been shown several times by studies to be untrue. Tax cuts do not create jobs.

If a businessman hire one or more new workers just because of a tax cut, he/she would be violating one of the fundamental laws of capitalism -- that all costs, including labor costs, should be minimized so that profits can be maximized. There is only one reason to hire a new worker, and that is because the business needs the new worker to make or deliver the product or service the business offers. Hiring an unneeded worker just cuts into profis needlessly, regardless of what the tax rate is at the time. This means that if a company doesn't need new workers then the cut in taxes will just be extra profit, and if the company did need a new worker the worker would have been hired anyway.

The second big lie is that if these companies had to pay taxes then they would have to raise prices to cover the cost of paying taxes. That is patently ridiculous. Taxes are paid on profits, and there is plenty of profit left after the taxes are paid. Taxes are not really a cost of doing business, since they are paid only on the profit that remains after all costs are deducted.

In addition, any company that raised their prices just to cover costs would leave themselves at the mercy of another company that priced that same product on the basis of cost only (not cost plus taxes). They would needlessly price themselves out of the market -- causing their sales and profits to drop. Prices, as always, are based on the highest price the market will bear -- not the tax rate on profits.

The only reason these companies aren't paying their fair share of taxes is because their friends in the Republican Party have given them loopholes that allow them to dodge paying taxes -- loopholes that are not available to working or middle class taxpayers. It has nothing to do with job creation or prices. These are just the lies that have been floated as a justification for the misguided Republican economic policy which favors the rich.

But the picture is even more complicated that that. Nearly all small businesses and some large businesses actually do pay their taxes like they should. They don't have the expensive lobbyists to pay off the congressmen to give them specially-constructed tax loopholes. In other words, the current tax system is not just unfair to workers, but also to small businesses and a few corporations (with lousy or no lobbyists).

It is obvious that our tax system needs to be altered -- not to make small businesses or working and middle class people pay more (they pay their fair share already), but to make many of the large corporations (who are making record profits) pay their fair share. A profit is a profit no matter who makes it, and the taxes on those profits should be paid by everyone.

Of course the Republicans will fight every effort to make their corporate buddies pay any taxes. It goes against their basic economic belief that the more money you make the less in taxes you should have to pay. That makes no sense to me, but then I don't ever remember the Republicans making economic sense.