Progressives Need to Rethink the Corporate Income Tax Reply

Article by Kevin Carson.
——————————————————————————————————-

Liberal and progressive online journals over the past week or so have been buzzing — rightfully so — about the recent revelation that General Electric paid no corporate income tax at all in 2010. According to a recent GAO report, about a quarter of the largest American corporations paid no corporate income tax in 2005.

But that’s really just the way the system is set up. If you think about it, the corporate income tax really isn’t all that progressive. Just about all the tax loopholes and other tricks for avoiding taxation tend to favor the big boys at the expense of everyone else. Perhaps the single best way to avoid taxes is for transnationals to shuffle income to subsidiaries in the lowest-taxed jurisdictions, so transnationals already have a leg up on the smaller companies that operate primarily in the United States. And if you look at the largest tax deductions and tax credits, they go overwhelmingly to companies that are capital-intensive (the writeoff for depreciation), high tech (the R&D tax credit), or heavily involved in mergers and acquisitions (the deduction for interest on corporate debt).

What’s more, the largest corporations are least likely to suffer for whatever corporate income taxes they do pay, because they tend to be in oligopoly industries that practice tacit pricing collusion through the “price leader” system. This doesn’t require any conspiracies or secret meetings in smoke-filled rooms. When three, four or five large firms control more than half the market in a given industry, they tend to follow the pricing practices of the dominant firm. So prices in an oligopoly market are “stickier.” The practical effect is that the big firms in an oligopoly industry are able to use administered pricing based on a markup from their costs — including the corporate income tax — and pass them on to the customers. That’s essentially the same thing a regulated public utility does.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s