Issues & Insights
Alan Radecki Akradecki

FedEx Paid No 2018 Federal Corporate Taxes — A Reminder That The Tax Rate Should Be Zero

I&I Editorial

FedEx’s tax bill for 2018 was zero. We are supposed to believe this is a scandal. Because an indignant media and Democrats tell us it is. But far from being a scandal, that’s the way it should be.

Though the tax rate in the U.S. on corporate residents is 21%, a useful cut from the Obama era 35% rate, then the fourth-highest in the world, says the Tax Foundation, America’s corporate rate is still roughly in the midstream of 208 nations, slightly below the global average of 23.03%.

While the U.S. still punishes businesses for making profits, FedEx was able to push its tax bill down to zero by working its way through the Byzantine tax code. Of course there are costs. A legion of lawyers and accountants are needed to slog through the swamp. It’s a parasitical drain on a company’s resources and energy.

When GE supposedly had a zero tax bill on $14 billion in profits in 2011, it filed a 57,000-page federal tax return. The exercise paid off. But it required the company to structure its businesses in an inefficient manner and invest “in socially wasteful projects” simply “to avoid paying taxes,” said Alex Tabarrok. The George Mason University economist has been rightfully critical of “a corporate tax system which wastes a lot of resources and raises relatively little revenue,” which turns out to be only about $225 billion a year, less than a quarter of the federal deficit.

Naturally the political left isn’t happy with companies working within the law to cut their tax bills. Sen. Bernie Sanders, the Vermont socialist who yearns to bleed successful businesses, tweeted that FedEx’s escape from the grasping hand of Washington is “not acceptable.”

Sen. Elizabeth Warren of Massachusetts, another Democrat running for president who wants to squeeze business, tweeted that what FedEx did was “obscene,” because “these companies love to wave the American flag, but they won’t pitch in a dime to support the investments we make.” She leaned hard, to no one’s surprise, on the Democrats’ lie that government spending is an investment.

Of course there was the usual screeching that the tax cut itself is a “giveaway” to corporations. This is either a dishonest assessment, because tax cuts give nothing away, they simply allow taxpayers, in this case corporations, to keep more of the profits they produce; or it’s a window into the minds of a class of public figures who believe profits belong to the government, which happens to be kind enough to let businesses keep some of them.

Despite the howling from the left, the ideal corporate tax rate is zero. Under that structure, “corporations would not need to scour the tax code (and the world) for loopholes or prepare millions of pages of tax returns. Think of all the talented lawyers, accountants and financial analysts who could do better things with their time,” say a couple of finance professors.

According to the Tax Foundation, about $150 billion is taken out of the economy each year to prepare corporate taxes, “and that doesn’t count the distortions that the corporate tax code introduces, as companies try to structure operations to lower their tax burden even if that doesn’t make the most business sense,” says Washington Post columnist Megan McArdle. “Nor does it include the time and money spent lobbying Congress for a more favorable tax code.”

She suggests simply eliminating the corporate income tax, or cutting “it to some token rate, such as 1%, that wouldn’t be worth the effort to avoid.”

Albert “Pete” Kyle, a finance professor at American University, also supports a zero corporate tax rate, because “taxing corporate profits makes aggregate economic output smaller and reduces economic growth.” A low rate relative to the rest of the world would reduce “the current incentives corporations have to move their businesses out of the U.S.” A zero rate would nearly eliminate the incentives to relocate — nearly not all because state corporate taxes are still a burden with steep compliance costs.

Before anyone gets too worked up about low and zero corporate rates, don’t forget who really pays the taxes: consumers through higher prices, business owners (which makes the corporate tax a tax on capital), shareholders (including retirees who live on their 401Ks and mutual funds) through reduced profits, and workers themselves, who apparently pay the largest share.

The greediest people on Earth are not those who earn wages, salaries, and profits and wish to keep what they made — it’s the lawmakers who want to forcibly take what belongs to others and use it for their own purposes. Even a criminal sometimes sleeps, said C.S. Lewis, and “his cupidity may at some point be satiated.” But the politicians’ lust for other people’s money never rests.

— Written by J. Frank Bullitt

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