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Palin calls for elimination of corporate income tax
Howard Richman, 9/6/2011

In her speech in Iowa on September 3, which you can watch above, Governor Sarah Palin called for the complete elimination of the U.S. corporate income tax as a way to create jobs. She correctly pointed out that the corporate income tax sends American jobs abroad and that eliminating the tax would cause investment in America to surge.

At the same time that she would eliminate the corporate income tax, she would end corporate bailouts, corporate welfare and tax loopholes. She would do so partly as an anti-corruption measure. She argues that Obama is growing a corrupt system of "crony capitalism" in the United States.

She is correct about the self-destructive nature of the corporate income tax. We summarized the disadvantages of that tax with the following four points in our 2008 book Trading Away Our Future:

  1. It penalizes American workers in international markets. Because most of America’s international competitors have lower corporate income taxes, the high US corporate income tax makes US products less competitive and drives corporate headquarters overseas.
  2. It results in double taxation. The same corporate income that is taxed as profits is taxed again when distributed to shareholders as dividends.
  3. It violates the principle of equity. There is a violation of the principle of equity in that the short-term burden of the tax is on shareholders and the same rates apply to poorer and richer shareholders. The long-run burden of the tax is shared with workers and consumers, since it reduces investment and economic growth.
  4. It encourages borrowing over equity. The corporate income tax causes businesses to favor debt over equity, increasing the likelihood of business bankruptcy. (p. 136)

Three other changes would need to be made in the tax code when the corporate income tax is eliminated:

  1. The personal income tax rate on dividend income should be raised to the same rate that applies to normal income (or corporations would be used to convert normal income into dividend income).
  2. The capital gains tax rate should be raised to the same rate as other income, but only applied if the capital is consumed, and not taxed at all if the capital is reinvested -- the roll-over tax treatment of capital gains (or corporations would be used to convert normal income into capital gains income).
  3. Income earned by non-corporate partnerships should also go untaxed if reinvested (or partnerships would be discouraged in favor of the corporate form of business organization).

When concluding our case for the elimination of the corporate income tax at the end of Chapter 7 of our book, we wrote:

In our view, the optimum solution is to treat corporate earnings and partnership earnings the same. Neither should be taxed if reinvested. Once sheltered within a business, capital could then grow tax free until it is consumed. The corporation would assume a role similar to that of an Individual Retirement Account (IRA), a type of tax shelter that encourages savings and discourages consumption.

We want corporation income to go untaxed if it is reinvested, just as we want capital gains to go untaxed when the capital producing the gains is reinvested (see Chapter 5). Reinvested capital is future income that should be taxed in the future when it is realized and consumed. (p. 147)

Palin continues to show more economic common sense than any other potential candidate who has a chance to be president. She has a three-fold plan which would grow the American economy: (1) encouraging the drilling for our energy resources, (2) eliminating the corporate income tax, and (3) balancing trade.

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Comment by Bill Patterson, 9/8/2011:

Ceaseless vetting, Books and ‘fact finders’, 24,000 emails forced open, fighting Obama since even before ‘Death Panels’ and long before a campaign . . .

I’m not sure when it happened, but I actually trust a politician.  Never thought I’d say that.  I hope I don't have a fever.

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]