Thursday, April 2, 2009

Why I'm Not a Republican


For once and for all can we agree that there is a difference between tax rates and taxes paid? The intentional blurring of this line is a fundamental reason while I am not a member of the GOP, though I am fiscally conservative and support many of their policies.

In today's press conference for the GOP's alternative budget, Congressman Matt Ryan was making some very valid points about spending, entitlement reform, and taxes, and then he drove the bus right of the cliff with the standard "Sean Hannity-like" rant about corporate tax rates. Sticking to the standard mantra, Ryan and the GOP proposed lowering the corporate tax rate from 35%, "which is the highest rate in the industrialized world," to a lower 25% which is the average. This sort of statement on taxes is disingenuous, if not outright deceitful and dishonest, and it is designed to to manipulate fiscally conservative people who are less than informed about tax policy.

There is a fundamental difference between tax rates and taxes paid, and it is disingenuous to argue that America’s tax rates are responsible for downturns in the economy or the movement of business abroad. No one pays the top rates in the American tax code, as it allows for generous deduction. While I may be in the 20% tax bracket, I pay no more than 11%. Incidentally, the GAO report found that between 1998 and 2005, two-thirds of American companies paid no income tax. This finding complements a similar study of the boom years of 1996 to 2000 which also found that 90% of the companies that paid any taxes paid less than 5%. Corporations in other countries may be paying a lower rate, though they often pay more taxes because their tax codes do not allow the generous deductions and massive loopholes that America allows.

A reasonable student of finance - which Ryan is clearly not because he's too busy being a politician - would understand that accounting practices allow companies to show no actual profits because of expenses such as salaries, interest, and investment. In fact, the model by which a company shows no profit and no loss is the most efficient business model and an optimum goal in terms of tax responsibilities. Certainly, the government should address the loopholes that allow companies to hide money overseas. However, to argue that Corporate America is overtaxed simply isn’t true.

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