The Issue Of Corporate Tax Essay

1570 Words Jan 27th, 2015 7 Pages
There has been recent media coverage of corporate “inversions”. In other words, corporations originally founded or thought of as “American” transplanting themselves in Canada or the United Kingdom. These inversions draw significant media and public attention and are a hot topic for politicians. Understanding the motivations and root causes of corporate tax behavior is integral to reforming tax code. In general, taxes generate income that funds local, state, and federal government activity. Furthermore, taxes can be used to control negative externalities that businesses would otherwise be incentivized to produce (think emission taxes).

Under the CBS news headline “Expert debunks claim U.S. corporate taxes are too high” a California law professor is cited as saying that many companies do not in fact pay anywhere near the current tax rate. This headline illuminates the difference between the stated and effective tax rates. At 35%, the United States corporate tax rate is the highest in the world. However, the Government Accountability Office showed that corporations paid an average of 12.6% in taxes as of 2010. This means that corporations, following the guidelines set by the federal government, were able to reduce their tax obligation by diverting resources from productive investments to tax evasion.

Following the theory of optimal taxation, the standard that United States tax law should be held to is as follows. Tax law that is considered ‘optimal’ achieves two…

Related Documents