Recently (as you can see in today’s video), talk of corporate tax reform has started in Washington D.C. While I understand that if the federal government does anything, it will likely have a negative impact, but that will not stop me from proposing common sense measures to corporate tax reform. Simply put, corporate tax reform needs to center around simplification.Taxes are costs to a corporation. Costs influence every decision a company makes. Those decisions include how much to produce, how many to hire, and what price to charge. What will an increase in corporate taxes do for hiring? What will an increase in corporate taxes do for prices? What will these increases due to the economy?
As we can see from the second chart, the degree in volatility in tax revenue from corporations has increased dramatically in the last two business cycles. These charts make the argument that it is in the best interest of the government to reform the corporate tax code. Unstable sources of revenue from the government side can only lead to unexpected budget deficits.
In addition, I find it extremely interesting that the government projects a 7-10% decrease in revenue from corporate taxes in 2015. Some light research on this topic did not produce a reason. If anyone has any theories, I would be happy to hear them.
Finally, having a simpler tax code will benefit corporations and the economy. A simpler code will make it easier for corporations to forecast their tax costs. (Forecast as opposed to budget). By having a better handle on taxes (and therefore costs), the employment market can become less volatile to dramatic changes in the economy. By making the tax code more complicated, the government will increase uncertainty and fear in corporate America, thus hurting its ability to hire.
I cannot stress enough that I am not calling for tax increases or decreases on corporate profits. I am calling for a simplified tax structure that will allow companies to plan better. Better planning leads to more transparency, which can only help the greater economy.