February 10, 2009
By Edwin J. Feulner, Ph.D.
In Washington, politicians like to seek common ground. So let's
begin by noting that many from both parties agreed with President
Barack Obama's recent warning: "A failure to act, and act now, will
turn crisis into a catastrophe and guarantee a longer recession, a
less robust recovery, and a more uncertain future."
Both right and left can also agree that Congress can help create
jobs and generate growth.
But if lawmakers really want to trigger a recovery, they'll
shelve their massive "stimulus" bill -- a trillion-dollar debt plan
that would actually weaken the economy. They'd do much better to
take a simple but powerful step: reduce the corporate income tax
rate to zero.
Total corporate tax receipts each year add up to about $300
billion. It's a mammoth sum, but less than a third of what liberal
lawmakers seem dead set on spending. Besides, corporations don't
pay taxes; people do.
Take Caterpillar, the heavy-equipment manufacturer. It recently
made news when it laid off 20,000 people just one year after it
actually hired 11,500 new workers. The company reported pre-tax
income of $6.3 millionin 2007. It paid $1.48 million in income
taxes that year. Imagine how many of those jobs could have been
preserved if the company hadn't had to fork over almost a quarter
of its income as taxes.
Our corporate tax rate is 35 percent, second only to Japan among
nations in the Organization for Economic Cooperation and
Development. That makes companies less likely to base their
headquarters in the U.S. or to open plants here. Eliminating
corporate taxation, on the other hand, would encourage businesses
to expand and hire Americans.
This wouldn't mean getting rid of all tax revenues, of
Even without corporate taxes, the owners of any type of
organization would still be taxed in one of three ways: through
their dividends, their capital gains or their salaries. Eliminating
corporate taxation would simply mean that all income is taxed once
-- when it's earned by individuals -- instead of being taxed a
second time when it's earned by a corporation.
Some will protest, of course.
Our nation's convoluted tax code (so confusing that even a high
percentage of President Barack Obama's nominees apparently can't
understand it) keeps a small army of accountants and tax lawyers
employed. A simplified code might put them out of work. But that
would be a small price to pay for a fairer system, one that helps
create many more jobs for ordinary Americans.
And creating jobs is what a federal stimulus is
supposed to be all about.
A plan proposed by Sen. Jim DeMint, R-S.C, and The Heritage
Foundation calls for slashing tax rates on individuals and
corporations by 10 percent while repealing the alternative minimum
tax and reducing the death tax. A Heritage study shows doing this
would result in 493,000 more American jobs by the end of the year.
By the end of 2010, employment would increase by 1.3 million
Imagine how many more jobs our economy could create if the
government went further, completely repealing the corporate
income tax. Multinational and international companies would be
encouraged to operate in the United States. They would hire
workers, bringing jobs and new technology to our shores.
Meanwhile, owners of corporations would have more money to
reinvest in research and development and in buying new equipment.
They would be more likely to hire and train Americans, since
there's less reason to even consider moving their business to
another country. As these investments pay off, economic growth will
Lawmakers should think carefully before they borrow hundreds of
billions of dollars, digging a deeper debt hole and expanding the
size and scope of government. Far better to eliminate corporate
taxes -- and unleash the job-creation power of our nation's
is president of The Heritage Foundation.
In Washington, politicians like to seek common ground. So let’s begin by noting that many from both parties agreed with President Barack Obama’s recent warning: "A failure to act, and act now, will turn crisis into a catastrophe and guarantee a longer recession, a less robust recovery, and a more uncertain future."
Edwin J. Feulner, Ph.D.
Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
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