In a world where financial markets are booming and corporate executive salaries rival the incomes of small nations, corporate tax collections in the United States have been falling for years.
Some say this is because the corporate tax rate is so high in the United States that companies have moved their headquarters, and thereby their taxes, to sunnier tax climates. They simply cannot afford to pay a 35 percent tax on profits, they say.
And I am here to tell you that any U.S.-based corporation that pays 35 percent on its profits has a fool for a CEO and a dunce for a tax accountant. Why would that be?
First of all, you have to know that there are two very different tax rates: the statutory, or official tax rate, which is indeed 35 percent, and the effective tax rate, which is the actual percentage of their profits that they do pay in taxes. Believe you me, it is much lower. According to the Congressional Budget Office, the effective corporate tax rate is 18.7 percent, after credits and deductions. Still high among nations, but nowhere near 35 percent.
The folks who want the tax rate lowered say it sends a bad message to businesses wanting to locate in the United States. The message is apparently very effective on businesses that have never actually hired anyone who studied tax law, because anyone who has will tell them that they will not be paying any 35 percent.
But how would the average person know what corporations pay in taxes? They won’t. It’s secret — not information that the citizen can be trusted with.
Surprisingly, it wasn’t always that way. In 1909, when the corporate tax was introduced in America, it was championed by none other than Republican President William Howard Taft. Not only did Taft want corporations to pay taxes, he wanted the public to know exactly how much they did pay, and when the corporate tax first became law the taxes paid by corporations were public information.
This was shortly after Teddy Roosevelt’s successful campaign against the graft and corruption of the corporate “robber barons.” Taft believed that revealing the taxes paid by corporations would be “a long step toward that supervisory control of corporations which may prevent a further abuse of power.” You can imagine how long that lasted. Within a year or two, corporate lobbyists had convinced Congress to change the law to keep the taxes secret.
Interestingly, while corporations under federal law are entitled to privacy in matters of taxation, in Montana that is not necessarily so. It is common knowledge that corporations are treated as “persons” under federal law, and because of that they have the same rights as real, live persons.
In Montana this is generally true except in the matter of privacy. Article II, Section 10 of the Montana Constitution confers an “individual right to privacy” on the citizens of Montana. When the Montana Constitution was being written, the word “individual” was specifically used instead of the word “personal.”
At one stage in the debate, Republican delegate Wade Dahood, an attorney from Anaconda, was asked if a corporation could be an individual. “A ‘person,’ yes, an ‘individual,’ no.” was the substance of his reply.
However, if you try to exercise your constitutional “right to know” (Article II, Section 9) you will be fighting an uphill battle, as I once found.
There is no doubt that taxes on corporations affect their bottom line, but those taxes pay for the privilege of doing business in America and pay for the services and amenities that make doing that business profitable in the first place. I’m sure they’re all proud of being Americans. They just don’t want to have to pay the dues.
Jim Elliott is a former chairman of the Montana Democratic Party and a former state senator from Trout Creek.