Is it time for major tax reform?

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The new congressional committee on deficit reduction that was organized in conjunction with raising the debt ceiling has been given the task of finding ways to reduce government spending and raise revenue. Some speculate that a major tax act could come out of this panel and be enacted in 2012. Not only would new tax legislation give accountants plenty to share with their clients, but changes in the tax laws could potentially wreak havoc with 2012 elections. This week, Ken Berry examined some of the key issues that will likely be discussed behind the closed doors of the Super Panel.

Many of the 2012 presidential hopefuls are choosing to discuss corporate income tax rates and the competitiveness of those rates with other countries. This is one topic that is likely to be on the agenda of the Super Panel. Personally, I don't understand why corporations are required to pay tax at all. Corporate tax is ultimately passed to the consumer in higher prices. Lower the tax (or do away with it), and you get lower prices. Sure, you could argue that if you cut taxes, corporate bigwigs will just keep the money (like the airlines did in the recent aviation tax snafu) and put more in their own profits.

But in a true free market economy, this shouldn't happen. Sure some corporate honchos can keep their profits instead of lowering prices and being more competitive - but it's the competing companies that will keep the playing field level by taking advantage of the situation and slipping in with lower prices. We could argue all day about whether companies would really put their tax savings back into the marketplace through lower prices and spending their earnings on research and development. But there's no argument at all about the fact that when corporate profits are taxed, that tax is incorporated into the price of the company's goods and services.
 

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