Corporate Tax Matters

by Elaine Schwartz    •    Apr 3, 2011    •    908 Views

CBS’s 60 minutes, the NY Times, Forbes, all seem to be talking about how large corporations avoid paying U.S. income taxes. GE, for example, has one of the biggest tax returns (24,000 pages) and the smallest payments. How? For many multinationals, a presence in different countries enables them to “put costs in high-tax countries and profits in low-tax countries.”

Other articles have looked at the disparity among corporations. According to a study from NYU professor Aswath Damodaran, biotechnology firms average a 4.5% federal tax rate while trucking companies paid 30.9%.

However, is what you pay really the bottom line? Instead, maybe we care more about the impact of taxes on business activity.

The Economic Lesson

Comparing 183 economies, “Paying Taxes 2011 The Global Picture,” conveyed the impact of taxes on doing business. In the Maldives, Qatar, Singapore and Hong Kong, paying taxes was the easiest. At the other end of the list where the tax approach was most burdensome, were Jamaica, Panama, the Gambia, Bolivia and Venezuela.

More specifically, the report looked at income taxes, labor taxes, property taxes, value added taxes, and sales taxes. It cited countries that taxed women more than men (Burkina Faso, Indonesia, Lebanon) and men more than women (Israel, Korea, Singapore). It considered tax trends and compared statutory rates to actual amounts that firms paid. It looked at how much time and labor businesses needed to comply with tax laws.

Their bottom line and the reason they plowed through all of that data was to compare the impact of business tax strategies among 183 nations. When doing business is easier, then people start businesses, they produce more, and they expand more readily.

What do you think? Should corporate taxes encourage job creation? Revenue? Innovation? Productivity?

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