In 1971, soon-to-be US Supreme Court Justice Lewis Powell sent his now famous memo (“The Powell memo 1971“) to Eugene Sydnor, then Education Chair of the US Chamber of Commerce. The result was an emerging corporate culture funding and founding hundreds of think tanks, university professorships, and organizations like the American Legislative Exchange Council (ALEC).
A significant effect of this memo was to begin forming the idea that “corporations are people.” It was Powell who authored the landmark majority opinion in First National Bank of Boston vs Belotti which became the foundation opinion for “Citizens United” – supporting the idea of corporate personhood. An opinion harshly dissented by William Rehnquist.
Powell placed a specific emphasis on a more favorable corporate tax structure
In addition to the ideological attack on the system itself (discussed in this memorandum), its essentials also are threatened by inequitable taxation, and — more recently — by an inflation which has seemed uncontrollable.
A false premise has emerged as a result of the “corporations are people” message. It is the idea that taxes in the United States are an undue burden, to the point of being a violation of corporate “rights” to profit. Corporate conservatives and lobbyists have been pushing for a reduction not only in the top tax rate, but in corporate taxes as well.
The message they are sending is that the US has the highest corporate tax rate in the world at 35%. That high rate is an imposition on the “freedom” of the market to make a profit, translating into jobs. The facts on the tax issue do not support their argument.
Just looking at the top rate a corporation could pay, does make it look like the US rate is high:
The problem is, the most profitable companies take advantage of off-shoring, combined reporting, and a myriad of other tax shelters. The effective rate, or total ratio of taxes paid after deductions significantly lowers the percentage paid. Remember, this is an average rate:
The US effective rate has hovered around 26%, around average for OECD nations.
A more compelling number is the “Corporate Income Tax as share of GDP.” This number has been on the decline since the 1950’s, with steep drops during the 1970’s and mid-2000’s:
In 2010, the corporate income tax fell to less than 2% of GDP. For a frame of reference, here are other Western Industrialized nation’s numbers:
In reality, US Corporations are paying far less than they have, or even should to the nation that afforded them the opportunity to succeed. Paul Krugman frames it nicely:
This whole fuss is much ado about nothing — or rather, it’s about the ability of special interests to create a firestorm of publicity over the alleged need to do something that, whaddya know, would improve their bottom line.
For a corporation such as GE to pay zero taxes on billions of dollars in profits is, in reality, unpatriotic. Do they not feel a sense of obligation beyond pure profit to the nation and people who provided enormous resources for their success? A new framework on taxes must be developed. Too much of our economic burden has shifted to the shrinking middle class in the US and Wisconsin.
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