Many people seem to think that corporations don’t pay their fair share of taxes. And they certainly don’t think tax cuts should be given to these big-business fat cats.
Recent news from the Treasury Department may change their way of thinking, however. The department announced that corporations paid $61.4 billion in estimated taxes for the fourth quarter, a whopping 33 percent increase over the year before. And if you look at the fiscal year that began Oct. 1, estimated corporate tax payments reached $82.9 billion, up from $68.2 billion the year before. That’s a 25 percent increase.
The reason for this boom in tax revenues from big business? A growing economy and low taxes on capital gains and dividends. And the two reasons go hand in hand. Low taxes on capital gains encourage investors to move their funds around when better investments come along. High rates, by contrast, prompt investors to stay in one investment, even if it shows a profit, to avoid the taxes.
Of course, money that flows to better investments spurs those companies that are succeeding to grow. And that means the economy grows and federal tax revenues increase.
While that’s pretty much a matter of common sense, to hear some in Congress and the media, extending these lower capital gains tax rates is just a giveaway that’ll swell the deficit.
When the House of Representatives passed a bill to extend these low tax rates, the New York Times called it “unaffordable and gratuitous.” The Washington Post said it was a “tax spending spree.”
Not to be out-demagogued, Rep. Louise Slaughter, a Democrat from New York, called the provision a “giveaway” that adds “$6 billion to the largest deficit in our country’s history.”
But the truth is that low capital gains and dividend tax rates actually spur growth and thus, tax revenues—this year so far to the tune of more than $14 billion.
Corporations are paying their fair share of taxes, and in greater amounts. And we have low tax rates to thank for it.