…If the deficit is going to be eliminated, that isn’t the main way it will happen.
No one can surely doubt that higher taxes are contractionary. Japan’s consumption tax rise in 1997 is often cited as a historic mistake; derailing a nascent recovery. As for taxing companies, they are merely a legal entity. Higher taxes on them must be passed on in one of four ways; higher prices on the goods they produce and sell, lower wages, less employment or lower profits.
Corbynites might hope all the burden will fall on the last but managers, who have a responsibility to shareholders (and a fear of being taken over), will fight hard to avoid that (and of course, any hit to profits and dividends will affect the funds that have promised workers’ pensions). Some companies may be able to increase prices to offset the tax but many won’t for fear of losing business to foreign competitors which will not be facing the same tax bill. They could cut wages, except that the Corbyn programme includes a provision for a sharp increase in the minimum wage. So the biggest impact will probably be on jobs; the jobs of Labour voters.
The 2014 IRS Statistics of Income, available for download here, reflects that all Business tax collections only amount to 11.8% of the total collections. (Total was roughly $2.691 trillion and Business (including tax on Non-Profits who sell unrelated stuff) only totaled about $318 billion.) A 10% reduction in Corporate Income Taxes would equal about $30bn. Good Managers can multiply that 3-5 times creating almost $1tn-$1.5tn in new capital to invest in their business. In 2014 Individual Income and Employment taxes accounted for 84.8% of collections.
Is it possible that lowering corporate taxes 10% (about 1% of total collections) would allow Managers to keep producing the minimum returns they need to support stock prices while allowing them to invest now freed earnings (previously going to income taxes) in new equipment (creating jobs for the builders of that equipment) as well as higher wages (to keep talent other managers might try to steal with excess earnings) and adding new workers? The Managers will see that investing in the future of their business is reflected in higher valuations of the stock and they get bigger bonuses (on which they pay nearly 45% Federal Taxes). Raising Corporate taxes always costs jobs, let’s try reducing corporate taxes and see if we can create jobs, that is the way to address the deficit. Just sayin….