Why High Corporate Taxes are a Bad Idea

 

Worst Case Scenario

Every time I hear some uninformed, leftist sheep repeat the party line, “Big corporations need to pay their fair share,” I cringe, right before I throw up. The Biden administration is poised to raise the taxes on Corporations to 28%. The United States already has some of the highest corporate taxes in the world, much higher than the average corporate tax rates in Europe.

What these people don’t seem to realize is that large corporations already pay an enormous portion of their profits in payroll taxes, work benefits, training costs, tuition reimbursement, travel costs, construction & infrastructure costs, billions paid for outdated, outmoded, & needless business regulations; the list goes on and on.[i] Companies that manage to show a profit will now have those profits taxed at 28%. If they do business in Seattle, they pay a business & occupation tax as well and this tax is on the top-line before expenses. Needless to say, large corporations in Seattle get clobbered with taxes stifling business growth and expansion, reducing new job opportunities. The following is a brief explanation of why high corporate taxes are bad for the regular folks and what would happen if United States corporate taxes were dramatically lowered.

Path of least resistance

Corporations will always look for the least expensive way of doing business and increasing shareholder value. That is why so many corporations moved from their US and European locations to China. Companies were willing to sacrifice autonomy, operational freedom, and lack of control in exchange for much lower wages for employees. Who cares if the insanely low hourly wages created a chronically impoverished lower class of workers, barely subsisting, suffering under inhumane working conditions, living in cramped tiny corporate housing, while the corporations emit millions of tons of choking pollutants and greenhouse gasses, exacerbating already unhealthy Chinese air quality? Middle class Americans could barely afford to buy relatively inexpensive $100 Nike trainers, which if they were manufactured in the US would cost far more, erasing this lucrative market. You can imagine what it would cost to buy an iPhone if it were manufactured in the United States instead of China.

Offshore manufacturing

The move to offshore manufacturing had a devastating impact on both the manufacturing job market in the US and on a dramatic decline of the Middle-Class, a group that was once the lifeblood of a uniquely American culture. Loosing manufacturing jobs had a trickle-down effect on nearly every aspect of American livelihood. This cultural shift led to a deepening economic divide between the wealthiest 20% and an increasingly poorer 80% of the US population. A rapidly expanding service-oriented job market, which catered to the upper class presented lots of opportunity, but the accompanying low wages sent millions of low-wage earners to near the poverty line.

Corporate Greed?

One would be inclined to blame this phenomenon on corporate greed but that’s simply not the case. Over the last 20 years we have witnessed a perfect storm ensuring the rapid demise of the middle class in the US.  As emerging third-world nations marched towards economic maturity they put increasing pressure on US corporations to remain competitive. We began to hear a giant sucking sound of Chinese economic growth made possible in China by a broad shift to a tightly controlled market economy (Capitalism). While Mao tse-tung rolled over in his grave China vacuumed up American and European companies eager to lower costs. Higher taxes, a declining US education system engineered by an all-powerful National Education Association (NEA) labor union hastened the shift. The unbelievable expansion of the high-tech industry attracted highly educated software engineers at very high salaries. Parallel to these trends was a comprehensive worsening of economic conditions across Latin America. This led to the largest immigration crisis the US has ever experienced. Corrupt Latin American politicians and powerful drug cartels exacerbated the immigration dilemma.

The Economic crash of 2008

As the US debt and balance of payment deficits increased astronomically, economic conditions in the US were poised for a dramatic downturn and stock market crash. As liberal politicians and bloated bureaucratic Government Sponsored Enterprises (GSE), such as Fanny May and Freddie Mac offered low and no-interest home loans to unqualified home buyers[ii], the bubble was about to burst. Throw in corrupt banking practices (derivatives), a rapid rise of middle eastern cartel oil prices, and the storm was unleashed. And through it all our unenlightened politicians continued to raise corporate taxes, expand the already bloated and wasteful entitlement structure, and manage to get us involved in foreign wars that we had no business being involved in, wars that seemingly lasted forever.

The Solution

Taxing corporations at 28% will not just hurt corporate profits (for the Left, profits are the most immoral thing in the world) but will have a dramatic impact on job growth. Here's what would happen if we dropped corporate taxes to 3%, or 0% or for the first 10 years if off-shore corporations move their manufacturing from China to the US. Corporations from all over the world would suddenly start to do the math.

 

Here’s what these corporations would be thinking, “Hmm, if I move my corporate headquarters and manufacturing to the United States, build new high-efficiency factories in southeast US where labor rates are lower, I’ll make billions of dollars more in profits and be able to pass my lower costs to consumers, thus dramatically expanding the market for my products. AND, not only that, but I will be able to create millions of new jobs for American workers. I won’t need to do the manufacturing in China, my manufacturing source and markets will be close by. I’ll have the corporate business freedom & control I need to operate most effectively, and dramatically reduce shipping costs.”

Lower Tax Heart Attack

The Federal government will initially have a collective heart attack at the thought of losing all those corporate tax dollars but eventually the government will also do the math. Millions of new jobs bring in billions of dollars of individual tax revenue, far outpacing the loss in corporate taxes. The upward pressure on job availability will almost immediately drop unemployment to less than 2%. These companies will bring their high-paying mid and upper-level management personnel with them, bringing more wealth to the US. Companies will scramble to find suitable candidates to fill the new positions. Companies will be forced to raise hourly rates as well as annual salaries. They will begin expanding their company benefits as they compete for job candidates. The government will be forced to loosen immigration restrictions in order to meet the high demand for both skilled and unskilled laborers. This would certainly trigger an overhaul of our antiquated and unfair immigration laws.

Exploding Economy

New housing-starts will explode; new state-of-the-art factories will sprout up across America. Corporate training programs and associations with colleges engaged in technology-transfer will produce more engineers and scientists. The rise of the Middle Class in the United States will once again become the envy of the world. Market economics will naturally begin to reverse the disparity between have and have-nots as skilled and semi-skilled jobs proliferate.

The Other Shoe…

Any significant cut in taxes, regardless of how beneficial in the long run should be accompanied by commensurate spending cuts. Neither Republicans or Democrats are inclined to reduce spending, sacrifice any of their sacred pet projects, run from pork-barrel political spending, or disappoint their constituents who simply don’t understand that you can’t have low taxes and fiscal responsibility at the same time. Feeding at the government pig-troth is apparently a favorite pastime for 21^st century voters. What we need is a Reagan style reborn Grace Commission[iii] that will examine every federal spending program and recommend which programs can be sun-set or cut. This effort could slash many billions of dollars from the budget.

Post Pandemic World

In a post-pandemic world, hybrid work scenarios will become the norm. There will be downward pressure on office rents as high vacancy rates become widespread. Infrastructure costs will actually decrease due to the hybrid work environment; workers will spend 30% to 75% of their time working from home. Gasoline consumption will decrease, greenhouse gasses will decrease, auto expenses will plumet, and auto insurance rates will drop. The hybrid work scenario will help companies take advantage of significantly lower corporate tax rates by enabling them to spend dollars, which were previously taxed, on more hiring, better benefits, higher salaries, and greater spending on their corporate infrastructure.

Higher Education Disruption

The post-pandemic economy has had another unforeseen consequence, which will disrupt our higher education establishment. Elitist Left wing Ivy league universities are bastions of billion-dollar endowments where wealthy alumni wallow in a sea of power, position, and influence. There are hundreds of tier 2 private schools and even some state schools that share the same level of opulence and bloated indulgence. These alumni wield their power and influence enriching the elite colleges infrastructure by constructing lavish and palatial classrooms, dormitories, laboratories, and administration centers. Professors are paid astronomical salaries to publish and occasionally teach in the classroom.

Admission to these schools is accompanied by highly competitive, war-like tactics, which include fraud, corruption, influence buying, and stratospheric monetary gifts. The recent college entrance criminal scandal resulted in fines and jail time for the worst offenders. However, the Wuhan Pandemic has precipitated a major paradigm shift in the delivery of higher education. Online University education, once the purview of popular schools such as Phoenix University and many others has been taken over by nearly every college in the country. Colleges, fearful of COVID outbreaks have been forced to deliver education online. Empty classrooms, dormitories, and college research facilities are stark reminders of the current college education environment. State schools, financed by local taxpayers still pay professors salaries, pay building maintenance costs, and an entirely new expense line-item, building out high-technology online education delivery mechanisms.

Financially strapped students, paying absurdly high tuitions costs are joining forces with other students and legal teams across the country in class-action lawsuits claiming, “Hey, we didn’t get what we paid for, we were supposed to get in-person teaching and now it’s sub-standard online learning…we want to be compensated, reimbursed, made whole.” Something must give. There is a massive shift underway, moving away from University education. This will eventually cause many schools to close and others to trim their budgets. The tuition loan repayment crisis[iv] will be exacerbated as students, who took out over 1 trillion dollars of student loans struggle to pay crushing debt. All these trends put pressure on traditional University education.[v]

Chinese Hegemony

China of course will be left holding the bag. Their economy will falter as tax revenues quickly abate. While I don’t wish misery on anyone, if the misery-index gets high enough in China perhaps the people, once accustomed to some degree of survivable subsistence will revolt and throw off the yoke of Communist oppression. One can only hope; freedom is a beautiful thing. Regardless, the era of Chinese hegemony will unceremoniously end.

Conclusion

This is the problem defined and solution presented. High corporate taxes have a negative impact on job growth and economic development in general. This situation puts the American economy in peril. The best way to grow an economy and sustain that growth is to create opportunities for all Americans. In order to do this, you must restore a vibrant and healthy middle class. This is possible by luring large global manufacturing and engineering companies back to the US with low or no corporate tax rates. The economic impact of low corporate taxes has a trickle-down effect, which ultimately grows the overall tax revenues. Couple this with sensible reduction in government spending, education reform, business regulation reform, immigration reform, continued support of a modern and disruptive AI based technology revolution, an energy production revolution[vi] and economic growth for all will be assured, it is a sustainable economic solution that will benefit all market segments and economic strata.

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[i] Large corporations such as Amazon are widely criticized by the left for paying little corporate taxes, in reality, Amazon pays billions in other taxes, investment in infrastructure, in their employees, investing in their community, and by creating thousands of new jobs. Those new employees pay individual income taxes that far outweigh the corporate taxes.

[ii] Freddy Mac Fannie Mae wrote millions of bad home loans resulting in millions of foreclosures; Commercial banks follow suit.

Oil prices climb to record levels halting economic growth. Unscrupulous bank executives using derivatives along with other shady financial instruments, for their own benefit in an attempt to mask the crisis, triggered The Perfect Storm. Freddy Mac and Fannie Mae paid millions of dollars to its sponsors in bonuses, mostly to US Democratic Congressmen. It was the largest political/financial scandal never reported. 

[iii] The Grace Commission was a President Ronald Reagan Executive Order, which was also sponsored by the W. R. Grace company. It was an independent team of inspectors looking into wasteful spending at all levels of government. The report, which was released in January of 1984 showed that if its recommendations were followed, $424 billion could be saved in three years, rising to $1.9 trillion by the year 2000. Unfortunately, but certainly expected, Congress ignored most of the recommendations, choosing to keep the status quo of Pork Barrel Political Spending and amassing even greater budget deficits.

[iv] One interesting solution to the Student Loan Repayment Crisis would be to require colleges to cosign for student loans. Presently, colleges don’t care if you come to class, pass your courses, graduate, or get a job, which will allow you to pay off your student loans. All they care about is getting the government funded tuition dollars into their treasury. However, if they had to cosign for those loans, they would immediately have a vested economic interest in encouraging their students to attended class, pass their courses, get their degrees, and ultimately find good paying jobs. Taking some fiscal responsibility for their students’ success would lead them to emphasize the degree programs that were most likely to generate viable incomes upon graduation. Students majoring in Photography, Radio & Television, Culinary Arts, Fashion Merchandising, Art History, and Women’s Studies, are not likely going to be offered many college sponsored loans. If you want to major in these programs be prepared to pay for them on your own.

[v] The COVID-19 has resulted in schools shut all across the world. Globally, over 1.2 billion children are out of the classroom.

As a result, education has changed dramatically, with the distinctive rise of e-learning, whereby teaching is undertaken remotely and on digital platforms. Some Research suggests that online learning has been shown to increase retention of information, and take less time, meaning the changes coronavirus have caused might be here to stay.

While countries are at different points in their COVID-19 infection rates, worldwide there are currently more than 1.2 billion children in 186 countries affected by school closures due to the pandemic. In Denmark, children up to the age of 11 are returning to nurseries and schools after initially closing on 12 March, but in South Korea students are responding to roll calls from their teachers online. With this sudden shift away from the classroom in many parts of the globe, some are wondering whether the adoption of online learning will continue to persist post-pandemic, and how such a shift would impact the worldwide education market. Even before COVID-19, there was already high growth and adoption in education technology, with global Edtech investments reaching US$18.66 billion in 2019 and the overall market for online education projected to reach $350 Billion by 2025. Whether it is language apps, virtual tutoring, video conferencing tools, or online learning software, there has been a significant surge in usage since COVID-19. How is the education sector responding to COVID-19?

In response to significant demand, many online learning platforms are offering free access to their services, including platforms like BYJU’S, a Bangalore-based educational technology and online tutoring firm founded in 2011, which is now the world’s most highly valued Edtech company. Since announcing free live classes on its Think and Learn app, BYJU’s has seen a 200% increase in the number of new students using its product, according to Mrinal Mohit, the company's Chief Operating Officer.

Tencent classroom, meanwhile, has been used extensively since mid-February after the Chinese government instructed a quarter of a billion full-time students to resume their studies through online platforms. This resulted in the largest “online movement” in the history of education with approximately 730,000, or 81% of K-12 students, attending classes via the Tencent K-12 Online School in Wuhan.

Other companies are bolstering capabilities to provide a one-stop shop for teachers and students. For example, Lark, a Singapore-based collaboration suite initially developed by ByteDance as an internal tool to meet its own exponential growth, began offering teachers and students unlimited video conferencing time, auto-translation capabilities, real-time co-editing of project work, and smart calendar scheduling, amongst other features. To do so quickly and in a time of crisis, Lark ramped up its global server infrastructure and engineering capabilities to ensure reliable connectivity.

Alibaba’s distance learning solution, DingTalk, had to prepare for a similar influx: “To support large-scale remote work, the platform tapped Alibaba Cloud to deploy more than 100,000 new cloud servers in just two hours last month – setting a new record for rapid capacity expansion,” according to DingTalk CEO, Chen Hang.

Some school districts are forming unique partnerships, like the one between The Los Angeles Unified School District and PBS SoCal/KCET to offer local educational broadcasts, with separate channels focused on different ages, and a range of digital options. Media organizations such as the BBC are also powering virtual learning; Bitesize Daily, launched on 20 April, is offering 14 weeks of curriculum-based learning for kids across the UK with celebrities like Manchester City footballer Sergio Aguero teaching some of the content. What does this mean for the future of learning?

While some believe that the unplanned and rapid move to online learning – with no training, insufficient bandwidth, and little preparation – will result in a poor user experience that is unconducive to sustained growth, others believe that a new hybrid model of education will emerge, with significant benefits. “I believe that the integration of information technology in education will be further accelerated and that online education will eventually become an integral component of school education,“ says Wang Tao, Vice President of Tencent Cloud and Vice President of Tencent Education.

There have already been successful transitions amongst many universities. For example, Zhejiang University managed to get more than 5,000 courses online just two weeks into the transition using “DingTalk ZJU”. The Imperial College London started offering a course on the science of coronavirus, which is now the most enrolled class launched in 2020 on Coursera.

Many are already touting the benefits: Dr Amjad, a Professor at The University of Jordan who has been using Lark to teach his students says, “It has changed the way of teaching. It enables me to reach out to my students more efficiently and effectively through chat groups, video meetings, voting and also document sharing, especially during this pandemic. My students also find it is easier to communicate on Lark. I will stick to Lark even after coronavirus, I believe traditional offline learning and e-learning can go hand by hand." World Economic Forum, Cathy Li, Farah Lalani, April 2020.

[vi] The federal government in association with key energy businesses must fast track 4^th Generation Nuclear Power. An aggressive plan could achieve the goal of generating 80% of our electricity in 20 years. 4GinNP is the greenest, cleanest, safest, and most efficient method of creating electricity. This plan will dramatically reduce out carbon footprint, get us off the petroleum spigot, create millions of new high-paying jobs, enable electric vehicles to operate more cheaply by flooding the grid with abundant low cost electricity.