Over the past couple of years, the federal government has spent well north of $1 trillion in a failed effort to stimulate the economy and create jobs. President Obama assured us that, if we spent all that borrowed and printed money, the unemployment rate would remain below 8% or so.
We all know how that worked out. The jobless rate remains far too high, with no real improvement in sight. It should be clear by now that the only thing the government is doing for job creation is stopping it. Stopping it with insane spending, deficits, regulation and a tax code that makes little sense.
I have a better idea. As a businessman and as one who talks every day with employers and entrepreneurs, I am absolutely convinced that one fundamental change to the tax code will create more jobs more quickly than all the so-called stimulus President Obama has ever dreamed of: Eliminate the corporate income tax.
As a matter of basic common sense, taxing corporate income has always been a fundamentally flawed concept. Corporations are things — not people. They don’t pay anything. The people who do the paying are shareholders, employees, vendors and others whose incomes are reduced because government is taking a cut right off the top of a corporation’s profits.
Eliminate the government’s cut, and those dollars will flow to shareholders in the form of increased income, to employees in the form of higher wages, and to investments that will actually put more people to work. All of those incomes will be taxed, but in a more logical and broader way — and the government will come out just fine in terms of revenues.
Some estimates place the number of jobs that could be created by eliminating the corporate income tax as high as 2 million. Even if the number is less than that, virtually no one disputes the fact that it would create a substantial number of real, private-sector jobs. In his State of the Union speech, even the president acknowledged that reducing the corporate tax would create jobs.
Eliminating this double tax has always been a good idea. Today, it has taken on greater urgency. First, we clearly need to let the economy breathe and create jobs. Second, our current corporate tax has become a major competitive disadvantage in the global marketplace. Nations from Canada to several of our European competitors have seen the wisdom of reducing corporate taxes, leaving us to steadily move down the list of investment-friendly places for job-creating businesses. We simply cannot afford to let that competitive slide continue.
All of this seems pretty straightforward. So why do we still have a corporate income tax? A couple of reasons, and neither of them are good ones. To those in government who do the taxing, the corporate tax is a great way to hide part of our tax burden from us. If they can take a cut from a “thing” before people receive their paychecks or dividends or profits, it seems a little less painful than actually seeing what we are paying when we look at our pay stubs or file our tax returns. Out of sight, out of mind.
Perhaps even more important, government really enjoys manipulating our behavior — and the corporate income tax is a great tool for doing so. If they want us to use more solar power, they create a tax break for companies that produce it. If they want companies to create certain kinds of jobs or invest in particular technologies, they can push them to do so by way of the corporate tax. In short, they can pick winners and losers. Take away the corporate tax, and it becomes much more difficult for government to “manage” us.
Letting government pick winners and losers is not a good plan. Making it harder for them to do so would be a very good thing.
Many politicians of all stripes are talking about reducing the corporate tax rate. If reducing it is a good idea, eliminating it entirely is a better idea. Some of the hesitation about eliminating it is a concern that we would all run out and incorporate ourselves. I’m not convinced that would actually happen, but even if it did, I’m not sure it would be bad. If the way we tax people today falls apart, the unavoidable result would be a long-overdue examination of and debate over a better, broader and more logical tax system.
I’m all for that.
Gary Johnson is the honorary chairman of the OUR America Initiative (www.ouramericainitiative.com), a 501(c)(4) advocacy committee. He is also the former Republican Governor of New Mexico (1994-2002), and has been a consistent and outspoken advocate for efficient government and lowering taxes.