Editorial 05-31-2011: Taking A New Look At Corporate Taxes

When you are the co-founder of an organization called “People Against the Corporate Manipulation of Elections and News” people understandably conclude that you are anti-corporate. That assertion, however, is simply not true. In fact, I am extremely pro-corporate. Corporations have played a huge role in making America the greatest country on earth. They have fueled innovation, created millions of jobs, and improved the quality of life in our society.

It is only certain aspects of certain corporations that I strongly disagree with. Excessive corporate influence of elections and news are obviously big concerns of mine. Pollution, exploitation of third world countries, outsourcing, unfair wage distribution, and the distribution of unhealthy products are my other chief criticisms of corporations. Merely holding these criticisms does not make one anti-corporate. It is important to distinguish between being a critic of an entity’s practices and being against an entity as a whole. Thus, even people who hold the aforementioned criticisms of corporations would admit that they are an integral cog in America’s overall success.

Indeed, America needs its corporations. However, America needs its corporations to be much more responsible. This is an easy message for a politician to champion rhetorically, but a difficult one to enforce legislatively. I’d like to present a simple policy that would result in a massive increase in corporate responsibility.

Currently, our corporate tax rate is 35% for corporations earning over $10 million. From 35%, the federal government gives corporations massive tax breaks, subsidies, and write offs based on a variety of factors. This system of taxation can encourage corporations to act responsibly sometimes. For example, increased domestic job creation often results in a tax break. On the other hand, the system does not discourage them from acting irresponsibly in several other ways. For example, there is little incentive for corporations to not pollute or to not outsource jobs. This is particularly true because it is more profitable for the corporations act to irresponsibly in these ways, and corporations will inherently act in the interests of more profits.

The solution to this problem is obvious. Make corporate irresponsibility less profitable than corporate responsibility. To achieve this reality, I propose a complete reversal in our corporate tax structure.

The corporate tax rate should start at 10%. From that low starting point, the actual tax burden of a corporation would be decided based on its degree of corporate responsibility. More irresponsible corporations would pay taxes at a higher rate, while responsible corporations would enjoy a minimal tax rate.

A corporation’s degree of responsibility would be judged based on a variety of factors. This would include, but not necessarily be limited to:

  • Pollution: Does using the corporation’s product causes pollution, or does making/extracting the product causes pollution?
  • Outsourcing Jobs: Is the corporation is closing their doors domestically while opening new facilities overseas?
  • Unhealthy Products: Is the corporation producing a product or service that is bad for people’s health?
  • Excessive Executive Pay: Based on a calculated formula, is the corporation’s executive pay disproportionate to their employees pay?
  • Societal Harm: Is the corporation involved in something that causes broad based societal harm?

There are several exceptions and caveats that would have to be included in this policy for it to work fairly. For example, the oil industry should be allotted a grace period to allow them to shift towards developing other forms of energy. A few tax write-offs should also stay in effect. For example, R&D tax credits should remain to help spur innovation. Corporations with long records of responsibility and high domestic employment may be rewarded with taxes even lower than 10%.

Over the past 30 years, the power of the government to regulate irresponsible corporations has been hurt significantly. Taxing corporations for their irresponsibility changes that equation. There is nothing corporations detest more than paying more taxes, and thus making less profit. The ability to tax corporations at a higher rate because of their irresponsibility is the best regulatory tool possible. In the short term, this will increase tax revenue from several industries that are extremely profitable but currently pay little in taxes. In the long term, it will hopefully lead to a broader base of tax revenue. Theoretically, the incentives to pollute less would lead to a green energy boom, resulting in significant economic growth, and more corporations to pay taxes. Additionally, this boom would complement the tax incentives not to outsource, result in millions of new jobs, and a broader base of individual tax payers.

The policy is also a win for corporations. Many corporations are already largely responsible, and could achieve a lower tax burden by taking only moderate action. Corporations that aren’t responsible will either have to change, or operate with a higher tax burden. For some industries, every corporation will be challenged to change. This is particularly valuable for corporations, because it means being more responsible can result in a competitive advantage. That reality would lead to a “race to responsibility”.

Lastly, the policy is a win for the American people. For over 30 years, we have been looking for a way to stop corporations from trading good American jobs for cheap overseas labor. This is the way. Not only would this policy spur responsible innovation by responsible corporations, but it would also result in job creation here. Aside from job creation, the plan would result in less pollution and less harmful products, achievements that all Americans would agree are good things.

President Obama has stated that tax reform would be a central part of his (potential) second term. It is possible that democrats could piggy back off of the president’s popularity and sweep the house and senate. If that were to happen, passing a plan like this would be achievable, and it would be a terrific accomplishment for our country.

– Scott Bloomberg, Co-Founder & Treasurer of PACmen


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