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| Wednesday, February 2, 2011 | 0 comments |

Corporate taxes are self-defeating

by Richard W. Rahn

If you were establishing a new business whose products would be produced and sold worldwide, would you set it up in the United States, which now has the world’s highest corporate-tax rate?

There is a growing realization that the U.S. is at an increasingly competitive disadvantage when it comes to taxing corporations. (See accompanying chart.) Even the Obama administration said it is open to a corporate-tax rate cut, and it is expected that President Obama will propose some rate reduction in his forthcoming State of the Union address.

From a purely economic standpoint, it makes no sense to tax corporations at all, because only people pay taxes, not legal entities. The corporate tax is paid by customers in terms of higher prices, by suppliers in terms of lower volumes of business, by employees in terms of lower wages and by stockholders in terms of lower returns. Many countries used to have higher corporate-tax rates than the United States, but, over time, they realized they were losing business - and jobs - to countries with lower rates; so most countries have been reducing their corporate-tax rates to attract new businesses and global firms.


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Estate Tax Often Hits Wrong Target

by Antony Davies

For as long as there have been politicians, politicians have hidden their true purposes by giving laws names that disguise what they actually do. One such law is the estate tax.

It should be called the "death tax." Just as a sales tax is paid when somebody sells you something, and an income tax is triggered when you earn income, the death tax comes when you die. So rather than conjure visions of IRS grave robbing, the politicians named it the estate tax.

When Congress at the end of last year voted to keep the Bush-era tax rates in place through 2012, it made one huge exception: It voted to increase the death tax from zero to 35 percent for the next two years. This will apply to all estates valued at more than $5 million. Beginning in 2013, the rate will increase again, to 55 percent, on estates valued at more than $1 million.

Many estates, however, consist of business assets. And this looms large when business owners make plans.

If, because of the death tax, the Internal Revenue Service will claim more than a third of what you own after you die, you will act differently than you would if there were no estate tax.

You might, for example, purchase life insurance to cover the cost of the tax. Or you might put your assets in a trust. Money that is spent this way, however, is money that isn't being used to grow your business.