Before that title gets you screaming in the comments please hear me out. I agree that under the current income tax system there are way too many loopholes and the biggest businesses don't pay nearly what they should. While closing loopholes and collecting more taxes would be great the money probably wouldn't be put to much use. Republicans will almost certainly demand that the revenue be used at best to lower state budget deficits and at worst to fund further tax breaks for the rich. Either way that money doesn't do much of anything for the average worker. I think I have a way to close those loopholes and keep everyone happy. It won't be ideal but this is one of a couple of policy proposals that I want to throw out there that I think could actually pass even in today's congress.
As Robert McIntyre and Matthew Gardner's second installment of Corporate Taxpayers and tax Dodger's showed just 265 companies have managed to avoid 42.7 billion dollars in state income taxes in the last 3 years alone. I think that money can be put to better use by allowing companies to opt out of the corporate income tax either partially or entirely with a set of conditions.
The average state corporate income tax is 6-7%. Since the average amount paid is 3.1% closing loopholes would raise quite a lot of money. My idea would be to close the loopholes but then allow companies to choose to pay a lower income tax rate or none at all. To avoid executives taking the break and putting it straight into their own salaries there would have to be restrictions. The restrictions I propose would be that 80% of the money saved would have to be used toward worker wages. To avoid this being concentrated at the top that 80% would be divided as a percentage of the workforce. So if 30% of the companies work force was factory workers 30% of that money would have to be used as wage increases to factory workers. Less than 1% of any company is the executives so executives would get less than 1% of that money. If done like this everyone in the company would get the same raise, but that works for me because its still 30 times the money going to factory workers as going to executives. The remaining 20% can be used however the company wants. The only restriction for that 20% is that if it goes toward wages it has to be distributed evenly like the other 80%. Other than that I don't care if they put it back toward their profits, even if we let that amount be exempted from the income tax. My last restriction would be that companies can only take a tax cut equal to their previous effective tax rate. So a company that paid 4% corporate income tax would be eligible for up to a 4% cut and a company that paid 0 income tax would be ineligible for a tax cut.
Now for what people will get out of this and why they will allow it to pass. There are 3 groups I believe would have to go along with a deal like this. Democrats, Republicans, and the executives at the companies that would have to decide to use this new law.
Let's start off with the business executives. The biggest draw for them is that potentially 20% of the money they aren't paying in income tax can go toward their bottom line tax free. While almost all companies profits will be cut by somewhere from 0 to 6-7% allowing 20% to go back toward profit will sound better to them than closing the loopholes and not getting any back toward profits. On top of that it probably wouldn't hurt that however small it was they'd get to cut the companies taxes and get a raise from it. There is also that they abhor the fact that there is a corporate income tax. I've even had a friend tell me that a corporate income tax amounts to taxation without representation. As crazy as that is I figure if we can appease that argument and any other faux first amendment complaint and get rid of it in a way that's good for us why not do it.
So why will Republican's go for this idea, first off they'd love to get rid of the corporate income tax as much as executives would. Politically they could tout it as a tax break for businesses so it must be good. Second because it's paid for by closing tax loopholes they can say that it doesn't add to the deficit, and since the top tax rate was already there even if companies didn't take advantage of it they can argue that they didn't raise taxes.
Then there's us. First off aside from higher wages for workers meaning , well higher wages for workers, we can add in the tax benefits. More money for workers is by far the biggest thing here, and I think this is the closest we can get to a jobs bill in the current climate. In addition I think there is a good chance this can increase state and federal tax revenues. If the average company cuts 50% from the top rate and paid the 3.1% that these companies pay now then year over year revenue from the corporate income tax wouldn't go down. Then all the extra wages for workers would be paying personal income taxes, medicare, social security, payroll tax. More money in Medicare puts Medicare less in the red and weakens Republican arguments for abolishing it. More money collected from Social Security tax and payroll tax both strengthen Social Security. And don't forget this is in addition to putting 80% of that 42.7 billion dollars in avoided taxes into workers pockets. Keep in mind that 42.7 billion is from only 265 companies.
I haven't tried to work out the numbers on this and there's plenty of factors I haven't thought of so maybe this doesn't work out as well as I think. If I'm even close though this should allow money that did go to tax loopholes to go to workers instead with no increased tax on workers and no real major increase to businesses either. I'm sure this can be improved and please offer suggestions in the comments. I think there's enough here that everyone gets enough to be interested in seeing it happen, and nothing to cause anyone to have major problems with it. What do you think?