Those who pay no taxes… are bankrupt

By a hare’s breath, the U.S. still has the second-highest corporate tax rate, just behind Japan. More ridiculous, companies in California, Iowa, New Jersey, and Pennsylvania all have higher corporate tax rates than Tokyo. According to the Paris-based Organization for Economic Cooperation and Development (OECD) a nation’s corporate taxes, followed by its income taxes, directly determine its capacity for growth — those with the higest rates (the U.S.) “are most harmful for growth.”

Here’s more from the WSJ:

In Washington, meanwhile, the politicians are still living in their own populist alternative universe. Last week Senator Byron Dorgan of North Dakota waved around a new politically generated study by the Government Accountability Office (GAO) finding that 28% of large U.S. corporations paid no income tax in 2005. “It’s time for big corporations to pay their fair share,” Mr. Dorgan roared.

Well, the Tax Foundation looked at those numbers and found that, among the large companies that paid no taxes, 85% of them also made no profits that year. American Airlines and General Motors escaped income tax for 2005 through the clever tax dodge of losing $862 million and $10.5 billion, respectively. How unpatriotic.

The GAO data only add to the case for cutting U.S. corporate rates. America now has the worst of all worlds: high corporate tax rates, but also lots of loopholes passed by Congress at the behest of favored businesses to avoid the confiscatory rate. This imposes huge compliance costs as businesses scramble to exploit the loopholes, with the result of less revenue for the government.

The average European nation has tax rates on corporate income 10 percentage points lower than the U.S., but those countries on average raise 50% more as a share of GDP in corporate taxes than does the U.S., according to a 2007 study by the Treasury Department. Ireland with its 12.5% rate captures a higher share of its GDP (3.4%) in corporate taxes than the U.S. does (2.5%) with its 39.3% rate.

To correct this revenue dearth, Barack Obama and Democrats in Congress are proposing to pry more tax money out of U.S. companies that have profitable affiliates outside the U.S. Mr. Obama is also shamelessly taking the Byron Dorgan line that the problem is venal U.S. CEOs rather than the nutty U.S. tax code.