Why Taxes Should Not Be Lowered

The Simpson/Bowles plan suggests a reduction in the corporate tax rates.  Their claim is that this will result in more tax revenue by discouraging companies to “park” income offshore in order to escape the higher U.S. corporate income taxes.  A better solution would be to no longer allow corporations to “park” income.  If a corporation reports income on a financial statement or if a corporate officer uses a level of income to justify compensation and bonuses, that is the income that should be reportable and subject to tax, regardless of where that income was earned.  Obviously, if earned off-shore and subject to taxes in the country where earned, those taxes should be credited against any U.S. taxes.  By the way, that is precisely how an individual with foreign income is treated.  For an individual, all income, regardless of where earned is reportable and taxable with a credit given for taxes paid to a foreign country.  There are two very good reasons not to lower U.S. corporate income taxes.  The first is the U.S. government spends an obscene about of taxpayer dollars to protect the interests of corporations beyond the borders of the U.S.  These expenditures can involve the use of military as well as efforts to protect intellectual property rights.  Is there any logical reason that would explain why a corporation should get a free ride and have individuals cover the costs incurred in behalf of corporate personal or corporate property.  The second reason for maintaining existing corporate tax rates is to discourage very wealthy individuals from turning themselves into corporations in order to escape higher individual tax rates.  Already many individuals have formed LLCs and S Corporations just to take advantage of deductions that are not available to people only receiving W-2 income. If corporate tax rates are lowered more individuals would find ways to self incorporate just as they did when individual tax rates were 70% or higher.  There is no secret and there is no free lunch.  Individuals and businesses will continually try to find ways to avoid paying their fair share of the costs of government.  The best way to avoid these games is to eliminate any and all loopholes, deductions, exceptions, and exclusions.  Once this is done, if the government ends up with little or no deficit and excessive revenue, that is the time, and the only time, to consider lowering the tax rates for either corporations or individuals.