Despite a record deficit so large that Standard and Poor is threatening to downgrade U.S. credit worthiness if Congress does not close it quickly, Congressional Democrats and Republicans are both supporting corporate tax cuts, from 35% to 25%, reports the Los Angeles Times. Supporters say the cuts are necessary to make U.S. companies more competitive with foreign companies, despite the fact that U.S. corporate profits reached their highest level in history last year even at the 35% rate.
According to the Times, the top tax rate for corporations has dropped from 52% in 1952, when they contributed one-third of all federal tax dollars, to 35% today, which is only 8.9% of the total federal tax base. As a result, the corporate tax of U.S. economic output has decreased from 6.1% in 1952 to 1.3% last year. After loopholes and deductions, most companies pay much less than the 35% rate.
Here are just few examples from the Times piece:
Hewlett-Packard had $11 billion in pre-tax earnings in 2010, but paid only $2.2 billion in income taxes, a rate of 20.2%.
Apple’s effective tax rate last year was 24%
Google’s effective rate was 21%
GE’s effective rate was 7.4%
Legislators are saying that they want to pay for the tax cuts by closing the loopholes, which might sound reasonable if there wasn’t already a multi-trillion dollar deficit. Closing the loopholes certainly makes sense if the goal is to close the deficit. However, the savings (if any) should go toward preserving (or bolstering) programs that benefit those most in need. If the increased revenues are insufficient to close the deficit, then the corporate, marginal income, capital gains and inheritance tax rates all need to be increased, not lowered, forcing the wealthiest Americans to bail out the state, which they can well afford to do, rather than punishing children, seniors, the disabled and the poor by slashing social spending.