How America was Tricked on Tax Policy. Bret N. Bogenschneider

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СКАЧАТЬ preferential tax treatment to only large corporations. The benefits that the current tax system delivers to large corporations comes at the expense of small businesses in the marketplace by reducing the relative rate of economic return to these competitors. At one point, small businesses were competitors in the marketplace in various lines of business, but now are unable to make a profit after taking into account the relatively higher tax rates charged to small business in comparison to large business. Once the small businesses are out of the picture, the large corporations are positioned to provide a good or service in the absence of any competition and can charge whatever price they determine that consumers might be willing and able to pay.

      The term “rents” is helpful here because corporate activity can be thought of like a landlord who wishes to collect rents from tenants. A good example is a Walmart superstore that serves a locality and has no competing local stores. Just like landlords are unlikely to stop being landlords if there is still some rent to be collected—that is, profit to be made, without regard to the tax rate—corporations are the same. This Walmart will leave the locality only when its market position has been eroded in some way and that erosion has reduced available profits (or “rents”) to zero. This might occur if the Walmart is subjected to competition from another large grocery or retail chain, like Target or Kroger. Tax policy could have a negative impact on Walmart if, say, Target stores were exempted from various types of tax but Walmart stores were not. Such an unequal tax treatment would potentially erode the market position of one business at the expense of another. However, this rarely, if ever, happens to large corporations. In contrast, it is nearly always the case that small businesses are subjected to much higher tax rates than large corporations, so the tax system accrues to the benefit of large corporations and at the expense of small business. This makes it unlikely that corporate taxes have any effect on large corporations at all, and they certainly would not cause them to raise prices. Redesigning the tax system to foster competition in the marketplace might even lead to lower prices by increasing competition to large corporations in the marketplace and forcing them to compete with small businesses on price.

      Large firms, especially after the Tax Cuts and Jobs Act of 2017, are generally taxed much less than small businesses; this rate differential reduces the after-tax rate of return to small business and ultimately assists large corporations in eliminating small businesses as competitors in the marketplace. Large firms may thus continue to enjoy monopolistic market conditions across the United States and increasingly in Europe and can extract rents from the marketplace to an extraordinary degree. An example is Starbucks, which now operates in many European cities with very low effective tax rates even though many local coffee shops in those same cities are subject to taxation on any profits at hefty European tax rates. Accordingly, it is rather outrageous to suggest that large corporations such as Starbucks might fly away like a delicate hummingbird from these market monopolies because of corporate tax. The hummingbird analogy simply is not as pertinent to large firms as it might be to small ones. Large corporations are more like crocodiles than hummingbirds. Once they move into a body of water, they will stick around until they have completely exhausted all the food sources—that is, profits or rents. Not even levying a tax will make that crocodile move to a new river if there remains even one wildebeest or small coffee shop owner waiting to be consumed.

       Deception #4. By inventing a special way to count taxes, we conclude the wealthy pay significant amounts of tax (e.g., the top 1 percent pay roughly half of all income taxes)

Several tax organizations operate tax policy websites that continuously publish reports that the rich pay lots of taxes. Often the claim is that the top 1 percent pay half of all US income taxes.¹³ Another oft-quoted statistic is that 50 percent of the population pays 97 percent of the income taxes.¹⁴ The implication is that because of the progressive tax rate structure of the federal income tax system that workers and lower-income workers do not pay as much in taxes as the wealthy. These organizations do not attempt to determine the source of federal tax receipts apart from current year income taxation that comprise the federal budget, however. Wage taxes, which are levied pursuant to a regressive rate structure (where a ceiling is applied and earnings above the ceiling are exempted from wage tax) are simply ignored by dropping the word wage before taxes and slipping in the word income as if that were a reasonable assumption in the formulation of tax policy. However, it’s not a reasonable assumption. These tax policy organizations claim to be bipartisan—and that’s true to some extent—as perhaps the only thing Republicans and Democrats agree on is that workers should fund as much of the tax base as possible. So, these organizations create misleading statistics that support the idea that the wealthy are remitting a disproportionate amount of the tax base through progressive federal income taxation, which just isn’t true.

      The reality of the federal budget is quite different from what you’ve been told by these tax policy organizations. The truth is this: A large portion of receipts arise from wage withholding in the form of Social Security and other taxes levied on workers, not from income taxes levied on the wealthy. The tax organizations that publish the misleading statistics are aware of this reality, so they need to create an explanation as to why only income taxes should count as federal tax receipts, rather than wage tax receipts, or federal government borrowing out of the Social Security trust fund, for example. In tax parlance, the invention of a new system of reporting on tax remittances comprises what is referred to as an “accounting method”; here, an accounting method for counting tax remittances to the Federal government. The misleading aspect of these tax statistics is that they do not consistently apply that special method of accounting. Then, absent consistency in counting taxes paid, it is possible to manipulate the statistical result to reach nearly any result.

      One method of accounting applied as justification is to create (or to “book an accrual”) an offsetting amount for hypothetical social benefits solely to workers to be received at some point in the future. However, this special accrual method is applied solely to workers as taxpayers. Anytime an offsetting amount is created or accrued based on a hypothetical for one group and not another group, it creates a fudge. For example, such a corresponding accrual for hypothetical economic benefits is then not accrued for large corporations or wealthy individuals in order to account for the similar benefits they receive from tax remittances. This means there is a mismatch within the application of the accounting for accruals or cash payments depending on whether the taxpayer is a worker versus a wealthy person or a large corporation. The mismatch in the accounting for future benefits represents the fudge, where it is really possible to create any possible result in tax policy by positing a future benefit of a greater or lesser amount. The result is then to say that tax remittances under the wage tax system are $0 (or even negative). The method is illustrated in the table that inserts a question mark to represent the fudge where one group of taxpayers follow one accounting method and another group follow a different accounting method:

	Current Taxes	Future Benefits	Net Gain/(Loss)
Worker	(45)	45	0
High income	(45)	?	?
Corporation	(9)	?	?

      This mismatched method of accounting for wage taxes can be challenged in two ways. First, given the many accruals in the modern tax system, tax policy could instead proceed on what is referred to as a “cash-basis” method of accounting. On a cash basis, the amount of current remittances by workers is very high, and this level of remittance could be compared to payments made by other taxpayers, such as large corporations. This would be used to calculate an effective tax rate based on cash taxes in order to formulate a coherent tax policy by applying one and only one method of accounting СКАЧАТЬ