Friday, February 28, 2014

February 28, 2014--Afghanistan 2006

Kevin O'Leary was a guest last week on CNBC's Squawk Box. He is the chairman of the $1.5 billion O'Leary Fund and a co-host of Shark Tank, a TV reality show that has budding entrepreneurs pitching their business ideas to self-made millionaire investors.

During his Squawk appearance he and the hosts got into a discussion about corporate tax rates. Currently, the U.S. federal rate is 35% and is in the news as Republicans in Congress are once more pressing to have it lowered to 25%, claiming that having a 35% rate puts us at a competitive disadvantage with corporations in other countries, even socialist ones such as France where the rate tops out at  33.33%. (And while they're at it, they want to cut individual top rates from 39.6% also to 25%.)

In the UK, the GOP points out, the top rate is only 23%, in Germany 29.55%, in Denmark 25%, Norway has a top rate of 28%, and in uber-socialist Sweden it is just 22%.

Taking even right-of-center hosts Joe Kernen and Becky Quick by surprise, O'Leary said he advocated a zero tax rate for corporate profits. The same rate that prevailed in Afghanistan in 2006.

To his astonished hosts who demurred, he argued that this would allow corporations to take their resulting increased profits and invest them in corporate expansion or investment in job-creating enterprises.

Becky Quick in particular went uncharacteristically ballistic. She is usually stone faced. It's her signature persona. Being inscrutable and unflappable. But O'Leary's proposal was even too much for her and she let him have it, lecturing him that people like her and him who are among the top 1% of earners should be willing to pay their fair share in taxes, at least as much as at present.

Rhetoric aside--and what she said was rhetoric infused--what she and other co-host Andrew Ross Sorkin failed to do was cite the overwhelming, widely-available evidence about the actual rate companies pay in taxes. Not the rate that's on the books.

If on average corporations pay, say, 25-30%, maybe there is a case to be made to lower the official rate to help make them globally competitive. If there is evidence that companies that have figured out strategies to pay less in taxes and as a result have been actual job creators, again, there may be a  case to be made to significantly lower taxes for all corporations.

But the evidence readily at hand was never presented. O'Leary was never confronted with the fact that on average, large corporations' effective rate is just 12.6% in federal taxes. Even taking into consideration what they pay in state and foreign taxes, their actual (as opposed to on-the-books) rate is 16.9%.

And there is no evidence that shows a positive correlation between effective tax rates and job creation.

I'm not sure how O'Leary would have responded, but at least the discussion would have been fact-, not opionion-based.

If I know these numbers from Congressional Budget Office studies, I do not understand why Quick and Sorkin, who do this for a very nice living, wouldn't as well.

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