Corporate Taxes/Incentives

Corporate tax rates, both in the U.S., and abroad, have gained increasing visibility following the EU assessment of a $15 billion penalty relating to Apple and Ireland’s tax strategy, and the ongoing U.S. election rhetoric.

Incentives get less publicity and are generally promoted as a jobs policy or the pursuit of some other social good, such as renewable energy.   The Federal government has invested large amounts of public money in support of “desired” economic activities.

However, a significant amount of incentive activity is accounted for by States competing with each other for new jobs, and often for job transfers.  States compete with each other to attract new industry, and the accompanying job creation, while municipalities, for example, fall all over themselves to give billionaires tax and other incentives to build new stadiums.

Taxing success and supporting projects deemed to serve some “public good,” at the national level, looks a lot like government seeking to pick winners and losers to support an agenda.

It is generally accepted by economists that an effective way to reduce demand for a specific good or service, is to levy a tax.  In that context, does taxing successful corporations make sense, or does Ireland’s approach of offering relatively low corporate tax rates more likely to encourage job creation and economic growth?

Investors tend to benefit from growth derived from market forces.  An improving economy with increasing job opportunities is likely to produce positive investment returns, over time.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®