Article Review of "A Better Way to Tax Us Businesses"

“A Better Way to Tax U.S. Businesses” is a persuasive article written by Mihir Desai. Three principles are proposed that could “improve the competitive position of the United States and the living standards of Americans” (p.2). It is important for tax structures to mirror the world economy, which is characterized by declining tax rates. Corporate tax reform should be implemented separately from fundamental tax reform and should be for the most part, revenue neutral. Lastly, corporate tax should be used as an instrument to encourage/enforce social responsibility (p.2).

In 1986, U.S. corporate tax rates were among the lowest of most developed nations. This was the year of the last significant tax reform. U.S. corporate tax rates are currently one of the world’s highest. The cost of doing business in the U.S. has increased significantly as the “importance of doing business in America has shrunk” (p. 3). High tax rates encourage investments in housing, noncorporate businesses or foreign countries instead of U.S. companies. This has an indirect effect on the American worker with a decline in real wages. As money is being invested outside of the country, opportunities end up decreasing in the U.S. and increasing elsewhere. High corporate tax rates also encourages corporations to move to lower-tax jurisdictions which results in a decrease in tax revenues. U.S. corporations, especially the wealthiest firms, spend a lot of money on ways to avoid taxes by way of lobbying. Companies that have less mobile income and fewer political connections are at a disadvantage. They end up paying a disproportionate amount of taxes (p.3).

High corporate tax rates have actually discourage “corporations,” and encouraged “noncorporate” entities. This is evident by an increase in noncorporate business income from 25% of business income in 1986 to 50% currently. The American economy has been financialized over the last 20 years. Private companies that are limited liability companies, S...