Investors.com - Corporations Will No Longer Stand Still For Same Old 'Soak The Rich' Schemes

Along the lines of my 1/21/10 post Obama’s Income Cap

Corporations Will No Longer Stand Still For Same Old 'Soak The Rich' Schemes

By J.T. YOUNGPosted 06:54 PM ET

Recent budget results tell a cautionary tale for a soak-the-rich tax policy.

Corporate tax revenues dropped precipitously in 2009. Simultaneously, the deficit shot upward. Even though economic conditions devastated earnings, the deficit tempts policymakers to further worsen them by raising taxes. Global competition advises otherwise.

Overall federal revenues fell 16.6% in the 2009 fiscal year ended Oct. 1. Leading the decline was a 54.4% plunge in corporate income-tax receipts.

America already has a tax system highly dependent on top earners. The top fifth of tax filers pay almost 97% of the nation's income taxes, according to Congress' nonpartisan Joint Committee on Taxation.

Fueled by an economic downturn that began in the financial community, there is now an added populist sentiment to punish the seemingly unscathed by extracting even more revenue from the top.

Such a soak-the-rich sentiment finds its perfect target in America's corporations. A faceless entity, the corporation creates the useful illusion of being "no one." Therefore, "no one" seems to bear the impact of corporate taxes.

In reality, just the opposite occurs. Corporations are more and more "everyone" — from employees, to investors, to customers. And the taxes placed on corporations are passed on to them all.

Yet today's budget figures breathe new life into the old myth. The fiscal 2009 federal deficit was $1.4 trillion and the Congressional Budget Office projects the fiscal 2010 budget deficit at an almost equal $1.38 trillion.

Washington's first inclination will be to raise taxes to close that gap. Why? For one thing, old habits are hard to break — Washington always looks to raise taxes first.

Politicswise, every spending program has a constituency, that's why it exists and continues to grow. Policywise, spending equals control. And control is power for politician and bureaucrat alike.

The contest between raising taxes and cutting spending is not a fair fiscal fight. Just as politics plays out in sustaining spending, so it targets taxing to the smallest political constituency: first, corporations and then the top earners.

It's no wonder that America's tax system looks like an inverted pyramid, resting on the top earners. It's not simply a matter of progressivity — following the rationale of Willie Sutton, who robbed banks because "that's where the money is." It's politics.

However, while corporations may not have the votes in a democracy, they have mobility in the economy. In their survival instinct, they have mastered "flight" over "fight." Corporations can afford to employ tax planning and avoidance strategies. If truly pressed, they can change locations with relative ease. Democratically small, they are economically nimble.