American Economy and Corporate Taxes - Essay Example

American Economy and Corporate Taxes In order to save the American economy, the income tax percentage for the US taxpayers is increasing on a swift pace. Multiple tax brackets have been introduced in order to save the US economy that is facing a major challenge after the 2008-2009 recessions. It is estimated by the economists and financial analysts that the increased tax percentage will allow a deduction in national debts. In another study, it has been studied that Americans do not like anything about taxation. Where on one hand, the Organization for Economic Co-Operation and Development (OECD) claims that the American government takes less taxes compared to other countries on the other hand majority of Americans have antigovernment attitude in this regard. For this reason, the government regulations are being questioned and demands for new provisions are rising. The tax issue in America is a crucial one and has been studied from various angles. Numerous articles have been written and published in an attempt to highlight the vitality of the issue and to discuss the hidden challenges. This purpose of this paper is to analyze a news article discussing the subject of taxation. Furthermore the paper will also discuss why it has become an economic issue and my personal agreement and suggestion on the subject. The article ‘How to Stop the Inversion Perversion’ published in the Wall Street Journal has highlighted the tax issue in America and how it is affecting the American economy collectively. Furthermore, the article has also discussed that how the government regulations have failed to effectively run the taxation system in the country. The article evaluated that during the economic growth of America many economic refugees entered in the American market in order to explore the opportunities and options that were lined up for them. However, the scenario reversed until recently. Numerous large organizations are leaving the American market or is either merging with international partners in order to re-locate their headquarters to get an escape from the high tax rates (Economist). The reason why the biggish companies are moving abroad or have plans to relocate their corporate homes abroad is because of the low tax percentages (Economist). Compared to the United States, Ireland, Britain, and almost everywhere the corporate taxes are far lesser. This has sparked a new issue for the American economy which is already passing through its hard times and for the policymakers in Washington DC as well. The treasury secretary, Jack Lew has raised questions regarding their patriotism and has asked the Congress to ban such international transactions as they are having a negative impact on the American economy (Economist). The article states, ‘America has the rich world’s most dysfunctional corporate-tax system’. This clearly suggests why major organizations, companies, and firms want to leave the country. The tightening rules on the corporate tax inversions are not sufficient to deal with the growing issue of corporate tax. Furthermore, the article illustrated that America needs fundamental reforms and not new complications (Economist). The article has defined the corporate tax structure of America and identified two horrible flaws. According to them, the tax rate in America, which is at 35%, is higher than the other 34 rich-country members of the OECD. Despite of the highest tax rate among these countries, America has failed to collect average tax revenues and is the least among the OECD countries. According to the article, the system has countless loopholes and tax ambiguities ranging from the smallest investment to the NASCAR race tracks (Economist). For this reason, the country had to pay $150 billion as the forgone revenue, which is half of the amount that was collected by the government as corporate taxes (Economist). The second flaw as stated in the article has talked about the tax collection process in America. It is studied that America levy tax on company’s income no matter where in the world it is earned (Economist). On the other hand, all major rich countries only charges tax on the income that is earned inside the country and not cross-borders. This again reflects the ineffectiveness of the American tax system and the collection process. Organizations are not charged for the corporate taxes if they do not bring the earnings home. For this reason, majority of American multinationals avoid bringing the income back home and has huge sitting, as huge as $2 trillion, in the foreign balance sheets. To note, these balance sheets are continuously growing (Economist). The aforementioned flaws have a collective negative impact on the economy. As the article states that the high corporate taxes daunts the investors and to further add to this scenario, the loopholes deform it completely. It is time that the government should have realized that important corporate decisions are made on the basis of tax considerations and not on the economic merits of any project. In America, the payment of corporate taxes fluctuates. The situation depends on the type of company / business or the cleverness and creativity of their lawyers. According to the article many businesses pay tax which is close to zero while others pay the full corporate tax at 35% (Economist). A few decades back the inversions in America were very less. As more countries started shrinking their tax rates while America increased its corporate taxes, companies started to relocate their business, thus leaving the country. To avoid such scenarios, the government regulated various reforms which were to ban such international transactions. However, it should be noted that such limitations and reforms would only benefit the economic system of the country on a shorter run. It has been observed that the American companies are finding alternate routes to escape the rules and the lawyers are busy in creating dodges to avoid such situations (Economist). The article further suggested a solution to this serious issue which states that the government should revise its policies and regulate new and effective laws and reforms. The American government should come up with decreased rate of corporate taxes and should eliminate all the loopholes and tax breaks. This is one way through which the government can bring America back to a single territorial system from a worldwide one. Keeping this in view, one of the Republican Congressman, proposed to cut the corporate tax equal to the OECD average, i.e., 25%, and to bring the territorial system back. However, the proposal was not accepted by President Obama and therefore nothing happens. In order to come up with sound corporate tax reforms, both the Congress and the government should bend a little. This is the only way through which the American economy can again roar to success (Economist). The economic issue discussed in this article has successfully developed a relationship between corporate tax and American economy. It has discussed how the current government regulations regarding the corporate taxes had have an impact on the economy of the country as more and more investors and organizations are fleeing American market. In order to balance and support their argument, the article took help of logical reasoning by evidencing several reforms while it has also contrasted the American tax system with that of the other OECD states. The analysis of the American corporate tax system and the present government regulations and reforms presented in this article are correct and agreed upon. The news article has effectively covered all the important aspects of the economic issue and has tried to relate it with the current economic shortfalls of America. The article has successfully illustrated what are the major loopholes and where the government has failed to effectively introduce and implement right reforms. The increased corporate taxes have rightly formed a bridge between the tax revenues and American economy. If the subject is studied on a broader perspective then it could be observed that the problem lies within the system. However, it was not long ago when new investors and multinationals were entering the American market and the country was doing well economically. However, the cheap tax structures and the attractive policies of other rich countries certainly added to the problems of America. With the strict reforms and increased tax rates, more companies flew the market while many of the companies found other way around to escape the government regulations. However, in all of these cases, the American economy has been influenced in a negative manner pressurizing the policy makers, congressmen and the government to look seriously into the matter. As an economist, I am in favor of the suggestion presented in the article and would like to show my concern over this issue by discussing the increased corporate taxes. Despite of the increased tax rates, the American government has failed to successfully collect the tax revenues and to improve the economic issues, furthermore, the government has also failed to eliminate the loopholes and the tax breaks which are also one of the major reason for the system failure. In order to strengthen the system and the overall American economy, it is suggested, that new reforms and policies should be introduced by the American government while the Congress and the President should collectively come up with sound strategies to address the issues. Work Cited Economist. "Corporate tax in America: How to stop the inversion perversion." 26 July 2014. economist.com. Online. 28 July 2014. . Read More