The national debt of the United States now exceeds $16 trillion. Current estimates suggest that the present year’s deficit will amount to approximately $1.1 trillion, a negligible improvement upon 2011’s $1.3 trillion deficit. The present unemployment rate is one of the highest of the past sixty years, with approximately eight percent of Americans unable to find work. Unless significant changes are made in both federal income and expenditure, the economic livelihood of future generations is bleak.
Searching high and low for a remedy to our nation’s economic woes, many politicians and businessmen have set their sights on the federal corporate income tax. Hoping to simultaneously create jobs and stimulate our economy, individuals from across party lines, including Barack Obama and Mitt Romney, have suggested that we lessen the federal taxation of corporate profits. A small group, though, including individuals such as Gary Johnson and Ron Paul, are of the opinion that a mere reduction of the federal corporate income tax rate would be insufficient. Instead, they propose eliminating the federal corporate income tax in its entirety.
Despite having the highest federal corporate income tax rate in the world, the Center on Budget and Policy Priorities and the Office of Management and Budget reports that, in 2011, only eight percent of federal tax revenue was drawn from the corporate income tax. The main source of federal tax revenue lies with personal income and payroll taxes, which constituted nearly 85 percent of the federal tax revenue for that same year.
Yet, how is it that reducing or eliminating the federal corporate income tax would help stimulate our economy? After all, when discussing possible solutions to our economic plight, many suggest cutting federal spending or raising taxes, rather than the seemingly counter-productive notion of reducing or eliminating a source of federal revenue.
The argument in favor of reducing, or eliminating, the federal corporate income tax begins with the concept that taxation of a corporation’s profits is essentially a punishment on productivity. Taxing corporations with the highest profit margins most heavily, which our current federal corporate tax policy does, stifles the incentive for corporations to succeed and expand.