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Corporate Income Tax Reform--- Seriously

by sanserve

The investor's eye view of politics is a simplistic, practical,
dot-connecting approach to sorting things out so that win/win
change can be considered. Real world politics is not concerned
with such things, and that is one of the most serious problems
facing investors today. There are at least ten issues that
require government action if we are to maintain our competitive
position in the world economy. Most of these are interrelated and
need to be acted upon simultaneously--- thus causing a major
political dilemma.

Politicians are much more interested in talking about change
than they are in actually legislating it; they prefer to champion
just one specific issue at a time so as not to appear too
independent; and they can't keep themselves from back sliding
into the now archaic distinction between investors and poor
people. Rich or poor, most Americans have investments. For the
small investor to become wealthier his or her efforts must be
encouraged by the tax code-- the wealthy will become wealthier in
spite of the tax code. And, believe it or don't, the vast
majority of the wealthy (even corporate executives) are good,
productive, caring-about-the-environment, people.

At the root of the problem is the tremendous investment the
major parties have in nurturing divisiveness, jealousy, and
misunderstanding in the electorate. The Republicans or Democrats
in power are always ruining the country and, of course, the guys
who are seeking power, will undoubtedly do the same. Perhaps the
most obvious example of misguided political handiwork is the
negative attitude of most individuals toward corporations, big
business, and international economic collaboration.

As non-voting but taxable entities, corporations are easy to
blame for all that is wrong in society, easy to sue frivolously
with no remorse or control, and popular to tax--- by both
parties. The sad thing is that most people don't take the time to
appreciate just how important business success and profitability
are to their own financial interests, short and long term. Mutual
funds, for example, perform better when businesses, large and
small, prosper. Profitable businesses produce jobs, provide
higher salaries, and (once all the extra fees, mandates, taxes,
and handouts are eliminated) lower prices.

Politicians have never been shy about dictating proper behavior
to individuals or hesitant in shamelessly picking the pockets of
businesses to fund their projects. Self-employed business owners,
for example, pay a minimum 35% Federal Income Tax, state and
local taxes of various kinds, and the usual Workers Compensation,
Medicare, and double Social Security Taxes. It adds up to better
than 50% quickly, and, at every level, all taxes, fees,
subsidies, assessments, withholdings, compliance costs, etc. are:

(1) Added to the price of goods and services, (2) considered in
hiring decisions at all levels in all business entities, and (3)
factored into decisions regarding new plant locations and service
function outsourcing. Businesses will only produce jobs in an
environment that recognizes the importance of the contributions
they make. Meaningful tax reform needs to begin where the jobs
begin. Reforms to the Individual Tax Code and the Social
Security/Retirement System can then be integrated into the
business framework.

Just as Congress picks corporate pockets, corporations pick
those of their shareholders. The compensation of corporate
officers is a clear example of how this has gone totally out of
control, even if it is understandable under existing tax codes---
both corporate and individual. Million dollar salaries, bonuses,
deferred compensation and option packages are all designed to
avoid and/or to defer taxes while, at the same time, they are
deductible on a dollar for dollar basis from business taxes.

Changes on the personal side could clean this up quickly but,
for now, politicians need to focus more on protecting
shareholders from these creative, and excessive, compensation
schemes.  Eliminating the Corporate Income Tax, and all tax
deferral/option/bonus mechanisms that are not available to all
employees at all levels, would be an excellent start. Then cap
total compensation packages at a specific number--- any excess
being paid only in the form of dividends to all shareholders.

The Corporate Income Tax is a non-productive weight on business
decision makers, causing expenditures that would not be
considered were they not tax deductible. Ironically, jobs are not
created to reduce the tax bite because every dollar of salary
brings with it an additional 40% or so in overhead. All the
actual costs of doing business (and all the perceived risks
associated with doing business) wind up in the price of goods and
services. The fact that governments can raise corporate costs so
much more easily than they can raise individual's taxes is
perhaps the biggest shell game threatening our economic well
being today.

If instead of taxing them into leaving the country, Congress
would cultivate the profitability of corporations, while focusing
regulatory efforts on the economic abuses of shareholders,
employees, and consumers, a whole new era of economic expansion
and productivity growth would ensue--- and we're just getting
started.
Investors need to impress upon candidates that they expect
meaningful change throughout the tax code, and that a second term
just won't happen without it.

After the Corporate Tax environment changes, politicians will be
able to devote their energies to defining "proper corporate and
non-corporate business behavior", and monitoring compliance with
a whole new set of rules and regulations. Converting the United
States into a Free Trade Zone, by eliminating all nuisance
assessments from all levels of government, would: increase
employment, reduce prices, and multiply distributable dividends.
Making it happen should not be that difficult, particularly with
the growing outrage concerning the obscene compensation of high
level corporate executives, and considering how successful the
FTZs have been on the local level.

Managers will make these changes work because the incentives are
where they belong--- on the bottom line instead of the tax
return. Small businesses would benefit from the reduction in
taxation, and fees, and would be less constrained in their
efforts to grow. If they don't do the right thing, they will
become less competitive in the marketplace, and that is the way
capitalism is supposed to work. But, don't be naive. Publicly
held companies will need direction, guidance, and policing--- an
excellent new career for displaced accountants and lobbyists.

Steve Selengut
<a href="http://www.sancoservices.com">Sanco Services</a>
<a href="http://www.kiawahgolfinvestmentseminars.com">Kiawa Golf
Investment Seminars</a>
Author: "The Brainwashing of the American Investor: The Book
that Wall Street Does Not Want YOU to Read" and "A Millionaire's
Secret Investment Strategy".

Syndicated by Top Gazebos - www.topgazebos.net

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