Yes, President Trump’s proposed 15% corporate income tax will make America great again as the best place to start and grow a new company, encourage American firms to stay in the US, stop off-shoring jobs, and bring their overseas cash back to invest in the US. Even more importantly, it will change the way corporate CEOs run their businesses to avoid taxes, such as unhelpful corporate mergers and acquisitions designed to eliminate jobs. More wrong decisions are made in business for tax reasons than any other, and the higher the tax, the more wrong decisions we get.
But let’s do it right. Let’s reduce the corporate tax without setting up a big tax differential for lawyers and accountants to find ways to shift high personal income into low-tax one-person corporations that don’t produce more jobs. Let’s do it in a way that will help American workers compete more equally with high-tech robots and lower-wage foreign workers. Let’s do it in a way that will do more than allow corporate managers to use their increased cash simply to buy back corporate stock or accumulate cash so that shareholders can benefit from lower capital gains or dividend taxes.
We can do all of the above by keeping the statutory corporate income tax closer to the personal income tax rate, perhaps 25%, and then get additional tax reduction with a Jobs Tax Credit so that our job-creating businesses are the ones that will benefit the most from the additional tax reduction. A $10,000 Jobs Tax Credit for every full-time employee working 12 months each year in the USA could bring the average effective corporate tax rate close to Mr. Trump’s desired 15%. We can pay for much of the lost tax revenue by eliminating the extensive corporate welfare deductions that support an army of lobbyists, lawyers and accountants paid for by big businesses.
Best of all a Jobs Tax Credit would be extremely simple, and thus available to every business, large and small. The only paper-work requirement is one new box on the standard W-2 form already in use for reporting employee income. This would be a huge benefit to small businesses, our most important job creators, who cannot afford the high-priced lobbyists, lawyers and accountants who work for big businesses. (Note that this is a credit for every full time employee in the US, not just for new employees as was proposed several times in the past and subject to much gaming of the system.)
A Jobs Tax Credit will encourage corporate management to see labor as a genuine asset, rather than simply another cost to be reduced to increase profits. Encouraging management to hire and not to fire will increase workers’ feeling of job security, helping the economy grow with workers’ increased willingness to spend. By encouraging management to hire, it will also work in tandem with welfare policies that encourage the unemployed to try to get a job.
Some may say that a tax incentive favoring humans over robots will work against economists’ calls for increased labor productivity, but economists must recognize that a continuing stream of wage income is essential for a growing economy. Robots do not pay taxes, and do not spend continuously for food and clothing and other living expenses. It’s true that a Jobs Tax Credit will raise the bar for installing robots, but this is a better way to favor humans than trying to tax robots, as some have proposed, and it will emphasize good robots installed to increase production rather than simply reduce wage and benefits costs.
In short, a Jobs Tax Credit will reward corporations for doing what their privileged corporate status intended them to do, namely, organize the efforts of many people to work together to meet society’s needs in ways none of us can do on our own, and it will most reward the businesses that grow the jobs we need to grow our economy.